Thursday, June 25, 2009

Coming to a Bank Near You?

Oh my:

Latvian firm accepts souls as guarantee for credits
A financial company in Latvia is offering residents loans secured by nothing but their immortal soul.

Riga-based firm, named Kontora, does not require credit history record or proof of employment. It grants loans of 50 to 500 Latvian lats ($100 to $1,000) to any adult after he or she signs the a very short agreement.

According to the agreement, the only security required of the borrower is their immortal soul, which they are asked to confirm as their previously unmortgaged property.

The loan is subject to one percent per day in interest until full repayment.

The period of full repayment is 90 days, and in case the borrower fails to return the money, the creditor gets full possession of his soul.

I can't find a link for Kontora, so I have no idea if this is true or just an urban legend. If true, what a great marketing tactic. Maybe all these payday loan places that litter strip malls around the country will pick up on the theme here in the U.S.? Hmmmmm.

Let's do the math on what these borrowers are facing. Mephistopheles loves the exponential function as it blinds the unwary with that long flat rise initially, before the compounding overwhelms you, crashes the system you built to sustain that growth and forces you to start all over from the ashes. Here we'll use the algebra version since it is easy to see and fits this situation quite well:

y = a(1 + r)^x

Where y equals the amount owed in 90 days, a is the initial amount borrowed, r is the 1% daily rate and x is the 90 day period:

y = ($1,000)(1.01)^90

y = $2,448

The above is the worst-case scenario, assuming no payments along the way. Give the Devil his due, he can do math. Surely the article is just a joke. Surely...

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