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Comment by aphextron | Hacker News Reader

>Don’t you think it’s bad for a society to have a system that encourages people to get loans?

Not really. Credit fosters growth. It's creating money out of thin air. It allows me to exchange rapid growth right now for interest payments later. If I'm young and want to buy a house, the time advantage of buying now versus buying when I have $100,000 saved in the bank far outweighs the fees and interest payments over time. Same goes for the utility value of a car or the ability to spend on a credit card for expenses incurred to go after a new career opportunity. So long as you have things planned out, credit is a very very good thing.

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The types of expenditures you give as examples are not what make the American credit system strange and questionable.

Yes, it makes sense to take on debt if you want to buy a house and you have a steady paycheck.

However, it's not obvious that it makes sense to take on debt to pay for things you already have money in the bank to afford. Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor.

This really becomes a problem when people use credit to pay for things they can't afford, of course. Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd.

> Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor.

I do it because I get a 1-3% rebate on all my purchases. That's free money for me.

Before I had a credit card that gave me a rebate, I bought everything with a debit card. I still had a credit card, but it was only for emergencies.

> Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd.

You don't really need to use the credit card to establish credit history. Simply having one is enough. A lot of people believe that to maximize the boost to your credit score, you shouldn't completely pay off the card, and instead carry a small balance every month, but that's a myth.

> I do it because I get a 1-3% rebate on all my purchases. That's free money for me.

In your mind it's a 1-3% rebate, but in actuality you're paying for it anyway due to merchant fees, etc.

If we're going to question the overall system, then not having credit cards would likely mean savings for pretty much everything you would buy today that uses a credit card as a facilitation of payment.

> In your mind it's a 1-3% rebate, but in actuality you're paying for it anyway due to merchant fees, etc.

Most US businesses don't bother with offering discounts for cash/debit payments, so it's not like cash-only lifestyle will generate dramatic savings.

You're missing the point.

If (a) everyone who owned a credit card actually had the means to pay for the good/service with available cash (even if not literally in their pocket) then (b) credit cards wouldn't be necessary and thus (c) good/services that typically use credit cards would be ~1-3% cheaper. In other words, the people who are getting rebates are artificially getting them b/c if credit cards didn't exist, all goods/services would be cheaper.

Cash has its own costs:

* someone needs to drive to the bank to ensure the register has enough pennies, quarters, and dollar bills to make proper change in the morning

* a system needs to be developed to prevent employees from stealing cash

* to avoid being a crime target, there needs to be a way to safely store larger amounts of cash

* there's a cost of an occasional fake bill being accepted by an employee

* someone needs to drive to the bank to deposit the day's earnings into the bank account

It's not like the US has zero businesses that deal exclusively in cash, so there should be success stories of disruptive startups going against the establishment by foregoing merchant fees and passing the savings on to consumers.

But outside of Arco am/pm gas station, I struggle to find a good example where a cash-only business, or chain, or a sector would offer consistently lower prices than their credit-card-accepting counterparts.

Which is exactly why it's not "free money" as the GP suggested.

But credit cards _do_ exist. Who cares about hypotheticals where they don't?

But credit cards do exist. And the person is getting a rebate over paying cash.

You're not really getting a rebate, the extremely high merchant fees in the US are paid by the customers.

While it makes sense for the individual, high fees should be regulated.

> You're not really getting a rebate, the extremely high merchant fees in the US are paid by the customers.

I don't know if it's the same in the US, but in Canada, the price can't be affected by the way you pay for it. That push some places to refuse cards.

That means that customers who doesn't use credit cards, pay for my rewards too.

Well, if you never put any transactions on the card, it's liable to get closed by the bank without notice - I had that happen with my oldest credit card after a few years of not using it, which hurt my credit score because you want your credit lines to be as old as possible.

> Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment.

Having just disputed a merchant transaction last week, I have one reason - to introduce an additional layer of consumer protection at no additional cost to the consumer. If I had transacted in cash, I would've been screwed. And this was a major nationwide retail chain, not a dude in the alley peddling stuff that "fell off the truck".

> no additional cost to the consumer

Merchant fees are very high.

> If I had transacted in cash

The only difference with a debit card is a function of regulation and the network rather than actually being a credit or debit card.

> Merchant fees are very high.

But there were no discounts offered for paying cash.

The parent comments are discussing benefits the American credit system as a whole not the benefit of an individual using a credit card in America. Other countries have much lower merchant fees due to surcharges on credit transactions and/or regulation restricting merchant fees.

>This really becomes a problem when people use credit to pay for things they can't afford, of course.

This is exactly it. People who use credit to pay for things they can't afford are a risk, but how do you identify those people efficiently? Seems logical to test for that by starting with low credit limits rather than immediately offering loans for items of high value like a car or house.

The consumer gets a free 30-day loan and the issuing banks (via credit agencies) get valuable data.

The credit card companies compensate you for "borrowing" $100 to buy groceries, which makes it, de facto, a good idea, assuming you can actually pay for those groceries anyway.

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