There are many people today that are against lending, those that think that lending is Usury, or that lending should be done at 0% interest. Multiple religious texts talk about this or condemn it, but let's look at it rationally, and examine how it really works. Let me explain to you how lending works and then you can draw the conclusions.

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What is a Loan?

A loan is a transfer of value that is due to be paid back at some point in the future. It is different than a gift, which is a permanent transfer, a loan is only a temporary transfer where the borrower has an obligation to pay it back, usually with interest on it.

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How it is enforced?

If it's not enforced then the borrower can just run away with the money, so there must be some kind of enforcement mechanism, there may be 2 kind of enforcements:

• Force: Usually a court appointed executor with police assistance goes to collect the valuables of the borrower that match the debt amount agreed in the loan contract. This may be foreclosure of a home, or confiscation of other property
• Collateral: A pre-agreed property that covers the loan at least 100%, so that in case the borrower defaults, the collateral is confiscated by the lender without further violence. (This method is much more civilized)

Now you might think that it's a little bit immoral to go and confiscate people's property, however stealing back your own money is not theft. So if somebody stole your bike, and you go to his house and steal it back is not theft in the moral sense.

I would prefer if all loans would have a collateral so that after default, the borrower would have no other obligation, except to surrender the already agreed collateral. It is much more civilized this way, and banks already do this, so it's alright.

For example imagine if you gave 100,000$ to somebody, and he can't pay it back because he gambled it and doesn't have any assets, he would essentially have to be your slave for the rest of his life to pay back your money, that you are entitled too. It would be bad for him, and bad for you as well, so this is why the moral rule is the following:

NO COLLATERAL , NO LOAN

Otherwise it is just a mess to collect back your money, it would devolve into mafia tactics, people threatening eachother to get their money back, and no decent human would want that. So better use collateral, that is the only moral way.

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Interest

Now many people have a problem with interest, and that is foolish in my opinion. There is nothing evil about interest, it's just the cost of money.

There are 3 reasons why interest is necessary for a loan:

1) Depreciation of Capital

You can read the article that it links to to understand it, but basically we know that everything decays around us, so we need to factor in the costs of that into a loan too.

For example:
I lend you a car for 10 years, it is obvious that after 10 years you will give me back the car in a worse shape, even if you took great care of it. Obviously if the car is broken, you have to pay to fix it, but if it has other damages that are not visible we still need to account for that. So if the car was worth initially 10,000$, and in the end it will only be worth 7,000$ (excluding inflation), then even if you pay for all reparations of it, you would still owe 3,000$, which would be factored into the interest

2) Inflation

The second factor is inflation. Normally you would factor in inflation into a loan, since you will get paid back in a worse currency, than which you have borrowed, if you lent a currency.

So if you lent out 10,000$ in 2009, and you get paid back 10,000$ in 2016, you would get back way less since the 2016 dollar is much worse than the 2009 one.

Now banks don't do this, because they have a fractional reserve system, that lets them lend out money from thin air, that is why bank interest is so low, because they don't need to factor the inflation in, because they have the power to create money and lend it out, whereas you don't. You need to lend your own, limited capital.

But if you lend out your own money, you need to factor this in, otherwise you will lose money, or get back lower quality money which is the same.

3) Cost of Time

Time is money and money is time. Think of money as a 2 dimensional chart, that on one hand depends on your lifetime, and on the other hand it depends on your capital, skills, talents, etc...

Your time is limited, and an interest represents the cost of time actually. You can either buy a house now and pay interest on it for 20 years, or you can buy the house in 20 years but that would make you miss all that time, and who knows maybe you will be dead in 20 years.

So time is very precious, and sometime you need things right now, and prefer to pay for it later, than to save money for it and buy it later. It depends how big need you have for that item.

This is true for personal loans, house loans, car loans, medical loans, etc.... But it's especially true for business loans.

For example:
In a business if you know that you make guaranteed 5% profit yearly, but your business has only 100,000$ capital, and you know that the system is scalable. Wouldn't it make sense to take out a 1,000,000$ loan and negotiate it with the bank a 3% interest on it? Instead of making 5000$ profit, you can make a 22000$ profit.

A business loan is very very important in this condition, let me show you a table of comparison:

Without Loan (5% Profit)	Profit	With 1M$ Loan (5% Profit – 3% interest = 2% profit)	Profit
Initial Capital: 100,000$		Initial Capital+Loan: 1,100,000$
100,000.00	0	1,100,000.00	0
105,000.00	5,000.00	1,122,000.00	22,000.00
110,250.00	5,250.00	1,144,440.00	22,440.00
115,762.50	5,512.50	1,167,328.80	22,888.80
121,550.63	5,788.13	1,190,675.38	23,346.58
127,628.16	6,077.53	1,214,488.88	23,813.51
134,009.56	6,381.41	1,238,778.66	24,289.78
140,710.04	6,700.48	1,263,554.23	24,775.57
147,745.54	7,035.50	1,288,825.32	25,271.08
155,132.82	7,387.28	1,314,601.83	25,776.51
162,889.46	7,756.64	1,340,893.86	26,292.04
171,033.94	8,144.47	1,367,711.74	26,817.88
179,585.63	8,551.70	1,395,065.97	27,354.23

So as you can see in this case, if the business is scalable and if the 5% profit yearly is guaranteed, then after 12 years we would have a total capital (minus taxes of course) of 395,065.97$ instead of just 179,585.63$ with the help of a business loan.

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Conclusion

So as you can see, a loan is pretty important in order to borrow time from the future and multiply profits in the present. For businesses it's crucial to evolve more efficiently, and for consumers it's important to enjoy things now instead of wait for an uncertain future.

But of course it can be abusive if people get addicted to it. For example maxing out credit cards and shopping like crazy is obviously bad, and people should only borrow strategically when they need it. Being addicted to debt is a serious problem, so people should only borrow responsibly.

But other than that, I see no problem with lending, and as you can see without interest rates, nobody would lend to people because they would lose money due to the 3 effects detailed above. So lending with interest rate, and with collateral, is the best way to do so.

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