tatjna (tatjna) wrote,

"Dear Ms Allison" - a translation

Backstory: I took out a loan when I started studying, before work agreed to reimburse me. In the grand scheme of things it wasn't huge, and after 18 months, last week it just went below $2000.

"Because of your great repayment record, you can enjoy the extra flexibility and convenience of a pre-approved $4,000 loan top-up right now!"

Translation: You actually make your payments, and we need folks like you right now, so we're hoping that dangling this bait in front of you will make you impulsively sign in to another three years of paying us lots of money regularly!"

"To recognise that you're one of our best personal loan customers..."

Translation: Maybe if we flatter you too? Because flattery makes people feel important and important people need more money!

".. we'd alos like to give you a 2.50%p.a. interest rate discount if you top up your loan. Plus, we'll waive the usual top-up establishment fee - saving you $250!"

Translation: We're hoping at this point that you'll be so excited about the flattery and the extra $4,000 that you won't notice that at our interest rate of 18%, even with a 2.5% discount, effectively tripling the amount you owe us will tie you into paying MORE for LONGER than if you just keep making your payments! We hope to baffle you with instant money, waiving of fees and tiny discounts into thinking that we're doing this for you, to help you out because you're awesome! That way you won't notice that we're desperately clinging on to those who actually make their payments and trying to squeeze still more money from them, because they're considered a low risk for easy money!

"If you've got something bigger in mind, we'd love to hear about it!" (ed in: I bet you would!)

Translation: If there's any way we can tie you into giving us money regularly for 20 years instead of a couple, please tell us what it is! The more interest we can squeeze out of you, the more we can shore up our profits. Yes, we're getting desperate too, what with businesses and things not spending enough money, we now actually need you little people, so hop to it and get long-term credit with us!

Suffice to say, the only reason I kept the letter is so that I could make fun of it on LJ.

Thing is, this global economic recession thing? What I hear is that it all started with little people borrowing beyond their means and banks encouraging this. Other things I hear: credit is a ripoff (cos, you know, we hadn't figured that out yet), spend only what you have, and the one that really gets me - the way that much of the world's investment is based in something that doesn't even exist.

Money works like this:

I have a horse and I want your potatoes. You want to get rid of your potatoes but you don't want my horse. You let me have your potatoes and I give you a bit of paper that says you can have my horse any time you want it. Lets call this piece of paper 'money'. Now, you never want my horse, but sooner or later you come across someone who has a pair of pants you like, and you want them. Happens they want a horse, and you have this piece of paper to the value of my horse. You give the guy the paper, get the pants, and he can come and get my horse by giving me the piece of paper. Or, he can use that paper to get something of someone else who wants the horse.

The point is, the paper is worth nothing, but its ability to transfer ownership of the horse is worth something. And at some point, it got to the point where it doesn't even matter if the horse exists or not. In my little scenario, the horse is out in the paddock waiting for someone to come along and ride away.

But with credit, and especially with the credit bubbles that have been created worldwide (yeah yeah, blame the US, but how many people have you heard of in NZ that borrowed 100% on giant loans, mmm? 110%? 120? On the gamble that housing prices would continue to rise and they'd be able to sell for more in the future? Argh, I digress.) Anyway, the point is, that the horse doesn't even exist. People are borrowing and loaning money on a gamble that the horse might be born in the future. Or on the possibility that if they talk the non-existent horse up enough based on the number of transfer-of-ownership bills they might get from it, someone else will want it. Or it's being borrowed against on the offchance that it'll turn from the scraggly old hairy-legged mutt I used to ride to Pony Club, miraculously one day it'll be a stakes-winning racehorse. Bear in mind that the person borrowing against this may-or-may-not-exist, potentially transforming horse have never looked at a pedigree, wouldn't know which end kicks and which end bites, and would probably have more idea what to do with the potatoes. But the bank owns the actual potatoes and can come take them away at any time, but can't resell them because they're worth nothing, and nobody can eat them because they've gone rotten.

OK, I took that analogy way too far. Point is, credit is stupid when a) the thing being borrowed against will never be worth the amount being paid back and b) you are borrowing more than you can afford to pay.

So for me to borrow $4000 and end up paying approximately $100/month interest on top of my principal for another three years, against something I don't really need* like a holiday (which i've already paid for up front so it'd only be spending money), is just stupid.

Yes, my bank thinks I'm stupid. They insult my intelligence with these letters, in the name of profit. They can sing for my money.

* The first loan was against my education. I consider that to be an investment worth my money.

There's a billboard out by the airport. It's a Kiwibank one, for their debit cards. It says "Spend only what you have." Words for these times. Credit is a ripoff. Never forget this.
Tags: credit is a ripoff
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