Hi all.
I explained about credit card loans. I will give you a way to visualize them, by turning them on their head.
Imagine you are loaning $200 to your friend, who I’ll call Mike, at 20 percent interest compounded monthly. You allow him to pay it off at any time he wants, and to get more money from you.
This means that each month, he should pay you about 4 dollars. 4 dollars from one person is not a lot. But say you have the same amount being borrowed by 2 thousand other people. The total loan amount? $400,000. The minimum payment on this per person? Still 4 dollars each month.
Now, let’s say that you decrease the interest rate by 10 percent, but increase the loan amount by a number that still allows you to get an average minimum payment of 4 dollars per month. What is this loan amount? About 122 dollars!
What about the reverse? (Decreasing the loan amount by $100) The new interest rate would be about 50 percent!
Isn’t it shocking when you think of it in another way?
