What is wrong with interest?

The word interest is used in one of two ways. When people put their money in the bank, the bank may choose to pay the depositor some "interest". This may well be something the bank could choose not to do at any point. It is common for example to be told you are getting interest on a current account. However this interest is quite different from the interest people have to pay on their debts. Unlike a bank giving you interest on your current account which they have the freedom to stop at any time, when you have an interest based debt you have no ability to just tell your bank you are no longer going to pay any interest charges.

Giving people money based on whatever formula you like and having the freedom to change it at any time is just a gift essentially. But charging interest on debts due is quite a different thing. The problems with interest are with interest charges on debts.

Debts with interest charges have a number of characteristics:

  • The debt is actually due immediately. This means they have an easily identifiable amount which is "the principal"
  • If the contract is breached, for example by failing to make payments, then the payment of the principal can be enforced immediately. In many cases, the debt can simply be called in and immediate payment demanded of the principal.
  • For not paying back the debt immediately the debtor is "charged interest".
Interest charges are legally not a trade but are in fact compensation demanded by the creditor from a debtor for having failed to pay a debt which legally is already due.

Interest charges are another form of a practice called "usury". Usury, known as "riba" in Arabic, is an old forbidden practice in which when a debt became due and the debtor was unable to pay, then the debtor would have his debt increased automatically. Often this involved a doubling or some other sudden increase in the debt the moment the debt became overdue.

The main difference with usury and interest charges is that in usury the compensation demanded is a sudden financial penalty significantly increasing the debt from one moment to the next.
Interest charges instead have financial penalties constrained to be proportionate to how late the payments are and how big the debt is.

Normally if you have a contract and someone fails to complete their side of the agreement, then the way to sue for compensation is to take your case to court. To prove that you deserve compensation from the other party you will need to demonstrate both that you have suffered some damage and that the other party is at fault.

In the case of both interest charges and usury compensation is automatic.

Interest charges and usury are forms of punishing debtors by demanding compensation from them without the need to prove either fault or damage.

Sometimes the debtor may be at fault. It may be that they could easily have paid the debt on time but chose not to. In such cases, then maybe some compensation is indeed due to the creditor if the delay caused them actual harm. However, there are also cases where the debtor is unable to pay their debts on time without great difficulty and harm if the debts can be paid on time at all. In such cases the debtor is not at fault and so should not be punished to compensate the creditor.

This is what is wrong with interest charges and usury: it involves punishing those not at fault. Not only does it punish the innocent, it punishes them in ways that makes them more likely to get punished again:

Usury and interest charges punish the poor, for being poor, by making them poorer.

It is a potentially vicious cycle keeping people enslaved in poverty. It is like pushing someone over when they stand up to punish them for the “crime” of falling down. Then, when they fall down again - because you pushed them over - they become accused again of the “crime” of falling down.
When someone falls over what they need is a helping hand pulling them up not a punishing fist knocking them down.

Finance can be arranged without any need for interest charges.
It can be just a simple trade of buying something and paying for it later.
The value of having easier payments can be built into the amount and timings of the payments that are agreed.

buythatforme.com is a platform helping people reach simple agreements to buy things now and pay later free from the inherent injustices of interest charges.