cphite wrote:A house would be well beyond what the average person could afford to buy outright, with or without any inflation caused by rental practices. The same is true for a car and many other large investments. People often find themselves wanting or needing things that they cannot afford outright.
And the people who have those things and want to sell them want to be able to sell them to more than just the few people who can afford them outright too. And lucky for everyone, those sellers have the option to do so: they can accept payments over time, which is basically an interest-free loan.
People can do that now. The thing is, most people wouldn't want any part of that.
Say you decide to move, for whatever reason; and you sell your house to Bob, and buy another house 400 miles away. It turns out that Bob cannot make the payments; Bob completely lied about his financial situation, he has nowhere near the income to make the payments, he has no assets he can sell.
At this point, you've got to get Bob out of your old house - which could take months - and make new arrangements to sell the house - which could take months. Months during which you aren't getting payments that you expected; and therefore aren't making payments that are expected of you. And that's actually a fairly mild scenario... it could be far worse. For example, what if the house burns down? Bob needs a place to live, but he obviously cannot afford to pay you and whatever it costs to live someplace else; you've not only lost the income from Bob, you can't even sell the house to someone else.
Chances are, you're counting on Bob's payments to make the payments on your new house; which you now cannot make, because Bob isn't paying you. And chances are fairly good that the guy you
new house from is also counting on your
payments to make his
payments, and so forth.
If only... if only there were people out there who actually specialized in lending money, who had the means of absorbing this sort of risk without being completely ruined when a loan went wrong. Perhaps those people could charge some sort of fee, that they could use to not only mitigate that risk, but to actually make a living by providing this valuable service?
Why would they offer that, you ask? Because the alternative is no sale at all. Better to get paid for your stuff over time than to just have useless stuff you don't need lying around forever. If those are the only options, because rent and interest aren't an option, sellers will sell on the terms buyers can buy on, because that's better for them than no sale at all.
But if you notice, rent and interest are options precisely because - as an almost universal rule - people find them to be desirable options. Because people often find themselves needing to either acquire assets that they cannot immediately afford, or to release assets that their potential buyers cannot immediately afford.
A system where all homes were bought and sold via private transactions that consisted of payments over time would only be horrendous; it would be completely unworkable. That's why you never, ever see that kind of system in practice on any sort of large scale; and you almost certainly never will.
We have rant and interest loans because they work.