The whole interest structure standards. Interest compounded daily is a huge blow to our national welfare and prosperity. No one should have to pay interest on interest and end up paying two or three times what the initial loan was for. It should be like buying land from the seller. The principle loan plus a flat interest total.
tHERE IS NOTHING WRONG WITH DAILY COMPOUNDING.
Sorry for cap reversal.
Compound interest usually applies just to loans that are open-ended or short-term, like credit cards or lines of credit, where the lender doesn’t know when you’ll pay it off. If you carry a balance, the unpaid interest gets added to your total, and then interest is charged on that new, higher amount—that’s compounding.
But here’s the thing: lenders compete with each other, just like grocery stores. If one charges too much, borrowers go somewhere else. That competition keeps rates in check. No one’s forcing anyone to borrow—if you don’t like the rate or how interest works, you can shop around or just not borrow at all.
In the end, borrowing is a choice, and the terms reflect the risk and flexibility that come with it.
Banking is a highly competitive industry. If a bank charges too much, customers will go elsewhere. Other banks will undercut them to win the business. Interest rates aren’t arbitrary—they reflect competition, risk, and market forces. If banks were truly gouging people, new lenders would step in with better deals.
That said, credit cards are the biggest source of compounding debt. Their rates are high because the risk of default is high—and compounding interest can stack up fast. The key with credit cards is to use them sparingly and pay them off quickly.
Most people like having a credit card for emergencies. But if you don’t like the rates or how interest is charged, don’t use it—that’s your choice as a borrower.
BTW, I used my credit card a few years ago to buy a high-end bicycle I found while traveling. It was on sale for about half price, so I jumped on it. I didn’t want to drain my checking account all at once, so I paid it off over two months.
I think I paid around $50 in interest, but I saved about $1,000 on the bike. In that case, the interest was a small price to pay for the opportunity—it was worth it.
I still have the bike.;-)