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Ahsen Mukhtiar

Student & Researcher,

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Can we live without compounding interest rate?

It is an established fact that interest is oppressive in any form to anyone. Individual debtor or government all have to suffer. I am not an expert but to me it seems to be a vicious trap. Compounding rate are always on the rise increasing debt many folds in no time. Some would say that same compounding applies to savings account then why its bad? but time value of money shows that currency depreciates more quickly than other specially in Debt seeking countries.


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    Aug 7 2013: I think of the interest rate as what you receive in return for letting someone use resources that are yours rather than your using them yourself or what you give others in compensation for using their resources so they cannot use them.

    For example, if I borrow one hundred dollars from you that you could have invested in your business fruitfully, I need to compensate you for as long as I am using that money. It pays you back for what you have actually missed out on earning from it in your business or however you would have used it.
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      Aug 23 2013: Okay your opinion is that interest is actually the opportunity cost of lending your money but it should be fixed for a period not in multiple rate. This would not create burden on borrower and satisfy the lender as well. When the initial time of loan expires then both parties could settle and if required enter into a new agreement.
      What i say that compounding makes debt servicing a burden on borrower in present practices.
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        Aug 23 2013: Are you arguing that fixed interest rates are better than contracts in which the interest rate varies over time? So, for example, are you arguing against the sort of loans that used to be common in which the rate of interest starts small and then grows?

        This would be unrelated to compounding.
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          Aug 23 2013: Yes i am suggesting this fixed interest rate.

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