From: "Andy Pandy" 
Newsgroups: uk.finance
Subject: Re: Leaflet through the letterbox - 739.9% APR
Date: Mon, 1 May 2006 14:02:27 +0100


"john boyle"  wrote in message
news:TTpOe6HkifVEFwwm@johnboyle1.demon.co.uk...
> >Presumably a lender using sky high interest rates like 25% per
> >fortnight envisages a
> >high chance of not getting his money back. Things may change to make
> >the prospect of
> >getting his money back more likely, as well as less likely.
>
> The starting point is that he will get his money back,

The starting point for any loan is that there is a chance the lender doesn't get his
money back. Lenders routinely lend at higher rates to those who they think present a
greater risk of defaulting, do they not? That's because the starting point is x%
chance of them not getting their money back, and the greater x, the greater the
interest rate charged.

x could increase with time (eg if the borrower loses his job), or could decrease (eg
if he gets a better job, starts managing his finances better, or wins the lottery
etc).

> any improvement
> in that chance is irrelevant. The introduction of any chance of him not
> getting his money back,

Introduction of any chance? Do you mean you've only ever lent to people who you can
100% guarantee can pay the money back?

> or an increase in that chance must increase is
> risk. This increase can not be offset by any perceived increase in the
> chance of the loan being repaid.

Why not?

You've already said that when people asked for short term overdrafts you extend the
term -  ie you are saying the chance of them paying back the loan is actually greater
over a longer term than it is over a shorter term!

--
Andy