Finance

Tweets on 2010-07-03 — The Whole Point Of Lending

Recently, on a personal finance show aired on FM 106.4, a caller asked:

When I look at my loan amortization sheet, I find that during the initial tenure of the loan most of the EMI goes towards paying interest rather than against the principal. Why is this so?

Because that’s the whole point of lending!

A lender always wants to reap the interest (read, profits) before reaping the principal — the principal can always be recovered later through the pledged security.

Put yourself in the shoes of the lender. That’s what you’d want to do too, right?

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