Loaning at Interest

When a family falls into poverty, it may be compelled to borrow money in order to survive. But if the lender charges interest on the loan, then that family will fall deeper into the pit: not only will they have to repay the loan but also the interest that accumulates on it. The lender may pretend, even to himself, that he is acting kindly; but in fact behind the guise of charity he is acting with extreme malice. He is trading on the calamities of others; he is drawing a profit from their distress; he is demanding a material reward for an act of charity, and so turning charity into robbery. He seems to be beckoning the poor family into a safe harbor, but in truth he is taking their ship onto the rocks. The lender may ask: "Why should I lend to others money that is useful to me, and demand no reward for it?" My answer is that you shall receive a reward: in return for the gold you lend on earth, you shall receive gold in heaven at a far greater rate of interest than you could ever imagine.

-St. John Chrysostom

In today's banking system, loaning money at interest and investing for interest are common practices and not unethical in most cases. Most money experts agree that taking out a loan on a house is necessary, and that taking out a loan on at least a first car is usually also necessary.

But there are systems that do take advantage of the needy. Payday loan companies appear to offer a quick fix, while really charging exorbitant interest. They take advantage of someone's need to have money fast. They may argue that the high interest is charged to offset the risk, but that is no excuse. Those driven to such places are in the most dire of straits, usually, and they need good financial advice and help, not gimmicks.

Now, on the other side of the aisle are those who borrow. As St. John says, sometimes it is necessary. But think carefully before entering into debt for something! Here is the example from a book I recently read that made it plain to me:

Say you make $30,000 a year, but you find you can't live on it, that you must live on $32,000. So you borrow the $2,000. Now the next year you will (especially in this raise-less economy) also make $30,000. But you will now have to pay back the $2,000. AND you will still have to cover the living expenses you tried to live on last year. So your quality of life just went from spending $32,000 a year to spending $28,000 a year, and that doesn't even begin to calculate the interest! You see the squeeze? If you are going to live on $28,000 a year, it is better to start off that way and save the $2,000 for yourself.