h a l f b a k e r yThe embarrassing drunkard uncle of invention.
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Consider a credit card product that allowed you to borrow money and then take out a percentage of your paycheck for the next 2, 3, 5, or even 10 years. The rate on this would be 2% to 3% less than typical credit card debt. The benefit to you (the borrower is twofold). First, you get a lower rate than
traditional credit cards. Secondly, this would not be considered debt on your personal balance sheet since payment (principal plus interest) is automatically deducted from your payroll. It could simply be viewed as getting an advance on your future paychecks. There may be an opportunity to further reduce the interest rates on these if the risks can be offloaded on the capital markets.
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Job Security with a capital "J". We can't fire Stevenson, He owes us 16 grand. |
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Welcome to the halfbakery!
Here's my question: why would the credit card companies lower the interest rate for this? My gut feeling is that it would end up attracting higher-risk customers, which would argue for higher interest rates. |
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What planet do you live on where people are guaranteed to keep a job for the next 2, 3, 5, or even 10 years? |
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I think it's an innovative idea but am unsure how the business model could be drawn so that a lower than market rate could apply. |
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I would like to suggest a tangent to this idea: The National Bank. The National Bank has need for very little infrastructure due to the fact that it can use payroll deductions for payments. My primitive quick calculations (from several weeks ago) estimated that loans could be given to non-high risk candidates at about 2-3% and the proceeds would probably easily pay off the national debt in about a decade. Banks competing with the National Bank could easily be coerced into providing ATM services.
If I am still insane enough to do it, this would be part of my presidential platform for my internet campaign in 2008. Anyone for a US Social Capitalist Party? |
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I don't like the thought of losing my job and then owing the company money - what a double-blow in one day. "I'm sorry, Smith, you're terminated. And, you owe us $5,000." |
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Isn't this just a higher risk version of how loans operate now? When you sign a loan agreement you make a legal commitment to pay back the money, from whatever resources you have. In most cases (unless you are being charged an exhorbitant interest rate) a simple credit-worthiness check is made by the lender to ensure that you actually have such resources. Under ksync's system, the loan is only secured against future payroll income. So the lendee is limiting his/her liability to repay. This represents a higher risk to the lender and so interest rates are likely to be higher rather than lower.
//this would not be considered debt on your personal balance sheet //
Oh yes it would. |
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401k loans are pretty close. You borrow your own money, pay yourself back with money automatically deducted from the paycheck, and I don't believe it goes out to the credit bureaus. Extra bonus: If you leave the company the balance is due and payable in full immediately. |
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What if the borrower loses the ability to work, like through illness or going to prison or something? |
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