The more you know: Loans and loan forgiveness.

When people talk about loan forgiveness or say they want to stop predatory loan practices this is what they are after:

When you get a loan (for your student loan, mortgage, car, medical expenses, credit-card or pay-day advance) you not only pay-back the money you borrowed, but you pay interest, which is the extra money on-top of the original amount you borrowed. Banks charge you a percentage of your TOTAL outstanding balance (the APR) EVERY MONTH. The interest is basically the fee the bank charges you for the privilege of them lending you money.

A $5,000 loan at an interest rate (APR) of 10% over 5 years means that you will borrow $5,000 from a bank and plan to repay the loan principal (the minimum required payment every month), plus the ACCUMULATED interest over five years. In the end, you will have paid $8,000 total to the bank to fulfill your loan.

So minus the original amount from the total: $8,000-$5,000 is $3,000. $3,000 is 60% of $5,000, so your 10% APR actually means you are paying-back 60% more than you borrowed, more than half of the original amount for a 10% APR. This is highway robbery, and the banks know it, and they also know that people don’t really understand this.

Do banks really deserve a 60% fee to simply loan you money? Would you borrow $100 from a friend if they told you you needed to pay them back $160? Not even mobsters charge that kind of money. No wonder people go to loan sharks instead of banks.

And if you miss a payment, your APR goes up, so people who cannot keep up with regular payments get charged even more for their total loan. Many borrows pay-back their original balance, but in the end some people end-up paying 2 or 3 times their original borrowed amount due to missed payments.

This is capitalism in a nut-shell, a rip-off, and part of the reason so many people are poor and why the rich keep getting richer. The rich do not EARN anything, they simply steal your money.