Topic: Lenders and borrowers during inflation (Read 599 times)

when there is inflation - than all the rich AND the poor suffers - I don't know why people think that inflation is for them only.

The discussion on inflation is indeed very interesting. especially if we look from the perspective of who will benefit and who will be disadvantaged in this rising inflation situation.

true what the OP said. that the Borrower will benefit when inflation comes because the value of the money paid will be of lower value than when the value when applying for a loan.

and it is not only a borrower who benefits in this inflationary situation but there are several others who benefit in this situation.

such as the following.

1. Owner of a house or building
Of course, this is a common occurrence when property price inflation such as houses and land will experience a high increase. That's why the property business is always a profitable choice even in times of inflation.

2. People who have big debt
Like what the OP said. that debt lenders benefit from inflation. because the value of money paid will be lower than before inflation and compared to when receiving the loan at the beginning.

3. Stock investors
basically the price of goods will increase and of course will make profits go up because the stock price will follow the increase. many investment sectors that make investors protected the value of their assets during inflation. different from people who save money in the bank. their value for money is not growing at all. instead experience depreciation during inflation.

In fact, there are many other sectors that have experienced a positive impact from this inflation, such as commodity investors and entrepreneurs. but the sector that suffered losses was far more.

Yes, I also have that same perception why bother other people if there's still other way to improve your financial status, I like that idea of being lazy not to go out with your comfort zone, afraid of extending their skills or seeking deeper for other additional ways to earn money, instead, they will go behind and ask to lend with their relatives or close friends, if they failed to pay the relationship are the one that in stake.

It's better to look at this kind of principle in case an emergency happens, you can't stop or avoid people if there's emergency they will do everything but if that's only for something that have other additional way, best not to borrow and find alternative to solve your financial needs.

For most persons who resort to borrowing to meet ends, it might be the only available option at the moment. I remember a story of how a man was left abandoned in the sea after their ship wrecked. He prayed to God to send a helper, a fisherman paddling by ask to help him, he refused for excuses of waiting for rescue. Another passed by he refused still, until he died and went to heaven. Upon reaching the gates of heaven, he asked God why he wasn't sent a helper even after being dedicated to him all while. He got a reply that he was sent the fisherman, and the other boat of which he refused to join. At the end of the day, the lesson that suffice is that, borrowing money, if done the right way, is a soothing means to an end. Mostly from close family and friends who may not require any interest.
For lenders however, the worst cases I have seen is that of loan sharks with their exorbitant interest rates and short time for payback. They can go as far as alerting contacts on ones phone about the current situation and thus making everything look messy.
It is good everyone works hard to make his or her own money, so as to avoid being a fool. In cases where it is the only option for critical cases, please borrow from a credible source to avoid embarrassment and one should also be responsible enough to earn so as to avoid such cases during this inflation period.

That's why I always give education to my friends or family, if they are having financial problems don't take shortcuts by borrowing money.
Borrowing money should be the last step we should take, before we have to try first to be able to make money. But most people are too lazy
to get out of their comfort zone, so most people are better off lowering their self esteem by borrowing money from other people. Instead of
working hard to find other sources of income to solve their financial problems. The importance of us having the right mindset in life, besides
that we can live more easily and most importantly we don't bother other people. Our mindset must be changed, namely it is better to give loans
than borrow money, how can we provide loans if our finances are bad. Improving our finances is related to our lifestyle and how we manage
our finances well.

Desperate move coming from people who really needs the money, though I can't justify since there are some who really in need because of this current situation while some are just wasting it to their own vices, but yes, your sentiment was right it's hard nowadays to borrow from your rich friends or relatives, as there are many cases where borrowers are unable to pay the lend money so aside from the money you also lose the trust from the person you lend the money.

We can't generalize everything, but again, lenders have their own reason why they are very desperate to take the loan and online loaners are taking advantages with high interest rate.

We should borrow money only for important and urgent matters, because having debt will make our life more difficult, that's why borrowing
money should be the last solution we take. Actually, if we manage our money well and diligently look for side jobs to provide additional income.
We don't need to borrow money, which very few people do that nowadays.

Then it is better to borrow money from our friends or family, because usually there is no guarantee or interest. But because there are some
irresponsible borrowers as you describe. Where sometimes the borrower does not carry out his obligations to pay debts, knowing the lender is
a close person. If many borrowers are like that, eventually many people who have money are afraid to lend their money to others. So we will
eventually find it difficult to borrow money from our rich family or friends, because rich people have been disappointed by their closest people,
who never pay their debts when borrowing money. If such an incident harms good people, they end up having to borrow money from banks and
online loans with high interest rates. Some even borrow money from loan shark at much higher interest rates, because the loan application was
rejected by the bank.

If we look at the entire situations that round about borrowing money for business during inflation, it can be concluded that it has both the good and bad side, during inflation, we know that the orice of buying a commodity rise and the seller makes more profits through this but we must not forget that there are occasions whereby sellers were incapacitated to afford buying a product due to high price and in this situation the seller begin to experience a drop in selling rate till he's unable to make a sell in other to return the borrowed fund, and we also know that some items are perishable, which means they can't last long before consumption and if the seller have a pause or drop in selling rate due to inflation, then this aren't going to work out nice, because he had debts ahead to pay for.

Inflation is a plague on the economy during any time, but it seems to be especially vicious in the current economy. Those with lower incomes should consider borrowing during periods of high inflation. Since lenders lose purchasing power during inflation, their assets are worth less. Borrowers make more money, so their assets are worth more. In addition, when lenders get the money back, the dollars will buy even less than they did before.

Would really be that common sense for those lenders or simply with those business owners which they would really be tending to make adjustments just to cover up those percentage loss due to inflation.
They wouldnt really be that dumb on not to make out adjustments because it would affect profitability and the ones who would greatly be affected is into those lendors who do took the loan.
They are the ones who do suffer out and this is what we do know that rich becomes richer and middle classes do pay up higher tax and poor becomes even more poorer.
Lets just embrace the reality or casual stuff.

Real intrest rate decreased during inflation times. Inflation rate is deducted from nominal intrest rate ( actually paid or received amount) is called real intrest rate. Based on real intrest rate can calculate the interest paid or received. Here creditors are lose and debtors are gains because of the depreciation of currencies.

Lenders are factoring this in by just raising their interest rates. It isn't difficult.

Lender recognizes their purchasing power to decreasing over fixed amount of time, by default 2% yearly compounded by whatever government mismanagement adds on top of that, they increase interest rates to cover that reduction in purchasing power by some value X. Whatever calculation that is is beyond what I can articulate, it would be dependent on the lender.

Borrowers aren't in a spot of luxury here. Lenders know the market better than anyone, hence they have the capital to lend. You'd have to take a gamble and secure a loan with low interest prior to inflation.

Exactly, it is that kind of thinking that got us in trouble during the crisis of 2007, people saw the price of real estate was growing at an impressive rate and people that had no knowledge about that market began trying to speculate with real estate and took loans that they did not need, then when the bubble was over and the price of real estate began to go down people were left with debts that were much higher than the actual value of their house, they defaulted and ruined their lives in the process.

Sometimes an estate agent could see an investment opportunity to buy a property for cheap and whether inflation or not he could approach the bank for loan if he sees the profit staring in the face. I agree with this because I have known someone like that and after buying, he immediately put it out for sell and regain the loan plus extra profit on it. It is risk takers and business minds that does that really.

No no no, you got it all mixed up.

You should not borrow money during inflation because the decreasing value of he dollar will complicate the payments of installments and increases the risk of default.

Similarly, you should not lend money during inflation either, because every default brings you closer to insolvency.

You'd expect people to know this by now after the Celsius and Voyager debacle. But they haven't learned a thing.

Only high-risk raiders should attempt to take loans during such a time in hope for a sharp profit e.g real estate flippers.

True, however we must also remember that those at the top did not got that high by being outsmarted by the average person, if a person is able to use cheap credit and inflation to buy more stuff then banks have that power on steroids, they can change their polices and give themselves a lot of credits while reducing significantly the ability of the average person to get credit and then buy everything they want, and that is if inflation keeps being high, if for some reason we were to see a deflationary scenario all of those people which took credit to make their purchases will be destroyed, as it will be impossible to pay their debts under that scenario.

Interesting post! I agree that inflation can be beneficial for borrowers in the short term, as they are able to pay back their loans with money that is worth less than when they borrowed it. However, in the long term, inflation can be detrimental to both borrowers and lenders, as it can erode the value of the money that is being loaned and repaid.

For borrowers, this can mean that they end up paying back more than they originally borrowed, and for lenders, it can mean that they are not able to recoup the full value of the loan. Inflation can therefore be a double-edged sword, and it is important to consider both the positive and negative effects before taking out a loan.


It's only one small piece of a bigger puzzle. So if your income isn't increasing with inflation, then your locked debt loses its value for you.

It would always make sense if we do speak on taking up a loan just for the purpose of improving overall benefit on your investment or business which it would be common sense and you could really make
out some calculations on your own on how it would benefit out although it wont really be that precise since we wont know if it would really be able to succeed or not but at least we are putting those loan
amounts into the proper use and not just taking up some loan just for buying something or speaking about wants which would never been worth and you are just really putting yourself into big trouble.
Never ever consider on having this option if you werent able to make more profits so that you wont really be having problems.

The amazing thing is, when you borrow, and get a machine to produce more stuff, and sell them for higher price because of inflation, you will be able to make that loan back very quickly.

Like let's say you took out 100k dollars loan, you need to pay 3k per month for 36 months, and you sell the product for 5 bucks, but you produce 2x more now thanks to the new machine, you could literally double your income even without price increase, but if the price goes up twice as well, your 5 bucks, becomes 10 bucks 2 products 20 dollars, quadruple of what it used to be. Do not tell me that doesn't sound like an amazing deal for you, while the loan stays the same, the income goes up very much.

Borrowing for productive needs, I think, is not so good, although it can help a little to circulate money in life, but the borrower also has to think about the smooth running of his business so that he can pay off his loan to the bank or to the party he borrowed. And of course it makes the borrower feel a little depressed because to run his business in inflationary conditions is clearly not easy. Because the price of goods becomes more expensive and the currency becomes cheaper so that there are fewer purchases.