Principal and interest

Principal is the amount you borrow or lend. The amount of principal you qualify for depends on many things including your income and collateral. Interest is an additional cost you pay for the privilege of borrowing money. The interest rates depends on many factors but primarily the risk of default. The higher the risk the higher the interest you pay.

The lending transaction is presumed to occur at arms length. This implies that all parties enter the arrangement willingly and have full information and understanding of the nature of the transaction. So make sure you clearly understand the lending arrangement you’re entering into. Don’t be coerced or enticed into borrowing money without a clear end in mind.

There are other non financial considerations to consider as well. A lending transaction creates a master slave relationship. In cases of default the borrower may lose their asset or freedom or both. As long as the contract subsists the borrower is slave to the lender. Servitude maybe necessary at some point in our careers but should not become a way of life. And if servitude is used to amplify one’s well being in the form of building wealth then it could be considered. 

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