Visualization of payday loans

Hi all.

As in the last post about rent to own, this post will explain payday loans without the jargon.

Say you have a deal with a friend lending him $100 for 2 weeks, if he pays you 15 dollars now (a fee). If he continues this for a whole year, he will have borrowed $2,600,  but he would have paid you 390 dollars in total in the fee.

If you got paid 15 dollars each 2 weeks for 100 years, you would get $39,000.  That is a lot of extra money.

Over the life of the loan, each day your friend would only pay you $20 for the $100 you lent him, but he would pay $30 in extra money.

A clear visualization of rent to own.

Hi all.

As with the previous post on what a credit card loan looks like, I will give you an explanation of rent to own without the jargon.

Imagine that you rent your laptop valued $2,000 to your friend, who I’ll call Mike, at 40 dollars per week.  He must pay you that each week, or he will lose the laptop. If he pays it off, he gets your laptop.

How many weeks will it take for Mike to pay off the loan? $2,000 / $40 = 50 weeks.

Imagine that you have 5 other friends you have the same deal with. How much money do you get in a week, given that there are 6 people you have the same deal with? 30 dollars.

Now, for Mike’s individual loan, let’s see how much money you get from the deal. You effectively get 104 dollars out of each 100 dollars that he gives you. He pays you only 80 cents per week for the laptop, coming up to a total of 40 dollars over the life of the loan. You get an extra $1,960!

Clear visualization of credit card loans

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?