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Introduction:

Money is meant to be a tool, but for many people, it becomes a trap because of the exploitative practice of usury.

Defining Usury:

To understand the modern problem of usury, we must first answer the essential question: What is usury? Usury is a predatory practice of lenders, trapping borrowers by using overbearing interest rates, hidden fees, and exploitative terms. Historically, it mostly applied to charging interest on loans, but this idea had to be adapted to modern times out of necessity.

How Does Usury Cause Harm?

Now that we understand what usury is, we need to show the harm it does. To do this, we are going to split this into two sections: the family and society.

The Family:

The Debt Trap – Usury can often cause debt to hurt more when you’re forced to pay ridiculously high interest or hidden fees. This can incentivise people to stay in debt; often mixed with unreasonable spending causes many to fall into a debt trap which eats most of their spare income away. When borrowers cannot afford the loan payments, lenders often force them to refinance, take out another loan, or seize their assets

Emotional Strain – Usurious behaviour makes the borrower a slave to the lender, which can cause unnecessary stress and anxiety, which can lead to outcomes such as marital disagreement, splitting up families, depression or suicidal ideation.

Society:

Harm to the Economy – While usury may look good for the economy, it can be detrimental to it, outside of the statistics. For example, Leveraged Buyouts (LBOs), where private equity firms buy a company using debt and then transfer that debt onto the acquired company, often forcing the acquired company to pay an inflated debt, which can lead to government bailouts, higher unemployment rates, and unnecessary market distortion.

Overreliance on Safety Nets – The use of usury can make people more reliant on safety nets such as government welfare, mutual aid, charity, or any other safety net. This is because it hinders a person’s ability to pay for essentials due to the extra payments.

Dual Nature of Blame:

While predatory lenders act unethically by exploiting borrowers, individuals in wealthier economies also share part of the blame due to irresponsibility and the lack of financial education.

The Lender – Banks, shops, and other institutional lenders carry a heavy burden because they have to maintain ethical business practices, which include showing all fees upfront, having reasonable rates/fees, and having a duty to reject loans that disproportionately harm the person taking them out. They are most responsible for protecting poor and vulnerable people from predatory financial practices.

The Borrower – Individuals carry responsibility when entering financial agreements, provided they have the full capacity, knowledge, and mental agency to understand the terms and conditions. This means individuals must stick to the contract even if it was unfair, and negotiate with the lender if needed.

The Easy Way to Avoid Usury:

Now that we know there is a dual nature, let’s talk about how to avoid usury. The first point we need to say is that usury is often a lifestyle choice disguised as necessity; for example, buying a new asset with debt instead of cash/debit (excluding a mortgage), refusing to make short-term sacrifices in times of hardship, and not paying off debt.

This can often be fixed by having a zero-based budget, stable investing, a 3-6 month emergency fund, and sinking funds, which are necessary safeguards against the harms of usury. This alone should stop all commercial debts if you work to pay off all your debts, even if it requires short-term sacrifices. However, this can be harder if you have a low income, but even if that is the case, you still need to try to implement the basics.

Conclusion:

Overall, usury is a system used to take advantage of people to benefit lenders. Usury can be mostly avoided if people build good habits with money.