The temporary provision of money (usually at interest)
Why do you need a loan?
I need a loan because I need new car. I need a loan because I need a new extension. I need a loan because I need a new fridge. I need a loan because I want to buy a house. I need a loan because I need a holiday. I need a loan to pay off my credit cards. I need a loan to buy the boat I want. I need a loan to have a new carpet installed. I need a loan to pay for the last loan!
Borrowing money isn’t a new thing. It has been around for many years. There’s always someone desperate, and there’s always someone willing to help (for a price). Of course, in the old days, the poor man trying to borrow money would be desperate – otherwise why would he need a loan? Desperation is why we borrow; or is it?
Am I desperate when I say I need a new car? Am I desperate, when I say I need a holiday? Am I even desperate when I need to buy a house or new furniture? This doesn’t sound very desperate! Although I might agree that the man who has gambled, or bought drugs, and needs to borrow money to pay back his creditors, who have threatened him, is.
We borrow money because we are addicted to pleasure. New televisions, new sofas, new bathroom suites, new cars, new computers – all things that give pleasure; except we are not prepared to wait for them. We are not prepared to earn and save money, to wait until we can afford them. We want them now, something which would previously not have been possible for the average man, but companies are now making it easy to have what we cannot afford. Right now!
Buy Now Pay Later!
Nothing to pay for the first 2 YEARS!
No deposit necessary!
Take it away today. No money required!
So it’s no wonder you can’t help yourselves. Who wouldn’t? It means you can have the pleasure right now, and it won’t cost you a cent! Until the pleasure wears off and the reality hits that you now have to pay back every penny plus interest for the next three years – long after the initial pleasure has worn off.
How long does it take for the pleasure to wear off the purchase of a new sofa? I’d guess less than three years – maybe soon after the purchase. Then you begin to think: “What else can I buy?” “Oh, look, that new fridge is on sale, with nothing to pay for two years!” And so it starts again, the cycle of borrowing; for no other reason, than we want it. In effect we put off reality, to have pleasure today.
Buying a house is the one thing that most people are taught to aspire to. The ultimate dream; owning your own home, not paying a landlord any more rent, something that is truly yours for life. Something you can sell, something you can make money on. A wise investment – until you can’t keep up the mortgage, because you lose your job, and get evicted.
As you all know already, you don’t own the house, until you have paid back every penny of the loan plus all the interest. Something which normally takes at least twenty years.
You have to be pretty sure about it before signing the contract. No more freedom to do what you like, no more leaving when you want, no more making decisions on a whim. You are an adult now, and with that, comes responsibilities. BIG responsibilities. Not to the world, but to a bank. Of course, you can sell at any time, as long as you can pay back the loan; so you better hope your house is worth more than you paid for it.
On the face of it, buying property seems like a sensible way to borrow money. After all, you need somewhere to live, and you have enough income to meet your repayments. It’s no one’s business but yours. Right?
Let’s move away from housing and go back to need, shall we? I think if we were all to be honest with ourselves, we would say we don’t actually “need” to borrow money to buy consumer items. Hey, even if you don’t have a sofa you don’t actually “need” one, do you? What you mean is, “it would be nice,” after all, in some countries, it is actually cultural to sit on the floor, and by all accounts, better for your spine!
So why borrow? Why do we get sucked in by these companies? Well, it’s because they know how to appeal to your inner desires; after all, that’s what they are. They know you want something new, it’s nice to have something new, and they want you to have it; after all it keeps them in business, and it’s good for the economy.
The definition of a loan is “the temporary provision of money,” and if you have the income that allows you to borrow money at interest, and pay it back over two or five years then there is no problem. It’s no ones business but yours. Right?
Imagine for a moment that you have never borrowed any money. How do you feel? Relieved? Happy? Maybe, but I doubt it. In fact, most of us feel happy when we borrow money. Not at the prospect of having to pay it back, but that it enables us to buy the things we want, but cannot afford.
Not that people rush into borrowing money. Quite the opposite. Most people carefully consider their financial position, do endless calculations, but will ultimately conclude, that although things may be tight, it is actually financially viable to take out the loan.
Five days later the high definition plasma television with dvd recorder and surround sound is delivered
Wow! Look at it taking centre stage in your lounge, all shiny and bright, sound coming from every corner of the room. You can’t wait to invite your friends round to watch a dvd.
“Wow!” says your friend. “Is that the new high definition plasma television with dvd recorder and surround sound that’s just come out?”
“Sure is,” you reply with a wide smile.
Any thoughts of repayments here? Not on your life! “I’ve evaluated the financial situation and now I’m just going to enjoy it!” That is, until your friend gets the new sports car you’ve always wanted… “I wonder if I could afford that, maybe I could take out a loan…” and you start to forget about that glorious surround sound.
So if we don’t actually need it, we don’t really want it, and we are the most intelligent being on the planet; what could possibly make us sign up for a loan for three years with interest (a fixed charge for borrowing money; usually a percentage of the amount borrowed)? One word:
The relative position or standing of things or especially persons in a society
A bigger house, a better car, a more expensive suit, a better holiday, a better computer, a better sofa. Let’s face it, we never trade down do we?
In days gone by, we used to be able to distinguish someone’s relative status in society by the type of clothes they wore. If you wore a top hat, or a cloth cap, if you had a horse and carriage or walked, or if you had a castle or a cottage.
It was evident to people on first meeting if you were of low status, and you stayed there, unless you made a lot of money. These days, it is harder to determine status, especially in the so called middle classes. We all dress similarly (driven by fashion), we generally all have cars and houses, and most of us have jobs. So how does the man, who earns thirty thousand per year, show he has a higher status than the man who earns twenty thousand per year? Certainly not in the street.
If I asked you to evaluate the status of two men in the street, who were both wearing the same jeans, t-shirt and shoes, could you do it? Maybe you could try to distinguish them, if one spoke with a more “educated” accent, but then again some people have made a lot of money without the need to have one. In today’s society it would be difficult, so we have to use possessions as the indicator.
If I follow the two men, I would be looking to see what car they drove, or where they lived. Like it or not, the ownership of an expensive sports car would satisfy me that this man was of a higher status than the man getting into a fifteen year old car.
But how does the man with the sports car distinguish his status from another man with the same make and model of car? He has a bigger house. And how does the man distinguish his status from another man with the same size house? He has more expensive furniture, and so on. Are you following this? We all have a need to show we are of a higher status than our peers.
You certainly wouldn’t respect the position of the king or queen if they lived in a tiny council house would you? No, they live in a house bigger than anyone else’s in the country, and that defines their relative status in society. This is not about what you know, or who you know, this is about showing what you’ve got. And if you want to be at the top, you have to have more possessions than anyone else in your status group.
I do not wish to start a discussion on why status is important here after all we are talking about loans! Let’s just say we like to impress people, and have a need to keep up with our peers. So it doesn’t matter what level of wage earner you are, if your friends have the new wide screen satellite system you’ve got to have it too; better still, make it the high definition wide screen satellite system with dvd recorder and surround sound while you’re at it.
But high definition wide screen satellite systems with dvd recorders and surround sound are expensive, aren’t they? And after you pay your bills, and buy your food, you have little left with which to buy new items. So you borrow. Just to keep up with the neighbours next door. To impress your friends. You sign up for a two year loan which will make your life, just a little more difficult; but you don’t care, this isn’t about the money, remember! This is about status. After all, would you really need a new sports car, if no one looked at it?
“I buy these things just for me, no one else. I’m not a show off! I just like sports cars, so I bought one! Do you have a problem with that?”
Although we may desire these new possessions (because we like them, they make us happy, and we are addicted to pleasure), we still have to keep asking ourselves; “would I really, really want it, if no one commented on it?” After all, a sports car just gets you from a to b, the same as an older car; and a wide screen tv still shows the same tv programmes as the non-wide screen version.
But this is not about the possessions themselves; a tv is nothing, neither is a sports car, they are just pieces of carefully engineered plastic and metal. It is only when we allow them to become symbols of wealth that they take on significance. Let’s face it, most of us are not or never will become extremely wealthy, but loans have enabled us to give the appearance of wealth.
I’ve had loans before, and I’ve bought cars, a small boat, tv’s, and washing machines, all of them on credit, and I definitely didn’t need them. I already had a car, and I certainly didn’t need a boat! I had a tv, and I could have used the local laundrette for washing; but I didn’t. I chose to get into debt; to make my life a little more difficult, so I could have the appearance of wealth, and gain a higher status position relative to my friends.
But it’s not just people with no cash who borrow. The wealthy borrow too. Remember it doesn’t just stop when you have all the possessions you want. Now that you’re wealthy, you’re going to want a better car, and a bigger house; your possessions are all relative to the status you want in society. The high definition wide screen satellite system with dvd recorder and surround sound might have worked when you were impressing your friends in the small, rented flat, but now all your friends have their own home cinemas! So what do you do? You carefully consider your financial position, do endless calculations, but ultimately conclude, that although things may be tight, it is actually financially viable to take out the loan!
Loan companies are not stupid, they know why you borrow, and they are making billions out of each and every one of us who are desperate to improve our status within society. Why can’t we be happy with what we have? Well, that is a question that should be addressed in another topic, as should housing. Let’s just say that the loan itself is not the problem, it’s why we want it that should concern us all.
This is a never ending cycle – once you’re on it, you can’t stop: until you finally realise that the ultimate reason for having something you have no money to pay for is status, and the cost is debt, and perpetual discontent.
BY ALAN MACMILLAN ORR
‘the natural mind – waking up’