"Every dollar sent to a lender in the form of a monthly payment is a dollar that will never compound, never earn dividends, never fund a future purchase without yet another loan application."
"The conventional lending system is extraordinarily good at making this cost invisible. Loan statements show balances and payment due dates, but no bank statement has ever shown a line item for 'wealth you did not build because this money went to us instead.'"
"The term 'opportunity cost' comes from economics and refers to the value of the next best alternative foregone when a choice is made. Every time you do one thing with a dollar, you are simultaneously choosing not to do something else with it."
"Applied to borrowing, this means the true cost of a loan is not just the interest rate. It is the interest rate plus the lost compounding that would have occurred if those repayment dollars had been deployed elsewhere."
When evaluating loans, most focus solely on interest rates and monthly payments, neglecting the opportunity cost of repayment dollars. Each dollar paid to lenders is a dollar that cannot earn returns or fund future purchases. This overlooked cost significantly erodes wealth over time. The concept of opportunity cost highlights that the true cost of a loan includes both the interest paid and the potential compounding lost from those repayment dollars. Understanding this can reveal the staggering financial impact of conventional lending practices.
Read at London Business News | Londonlovesbusiness.com
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