Debt and Interest

Business Loan
A business borrows $10,000 for 10 years at 10% interest
to buy a machine.
They would need to earn $3000 each year
to pay back interest
to pay off the loan
and for depreciation to be made.

At the end of ten years,
they would be out of debt
and have a new machine.
They might not bother repaying the principle
so they would only need to earn $2000 each year.
They would continue to roll the loan over,
as long as they continue to use the machine.

The loan is good business decision.

Consumer Loan for a Car
A person borrows $1,000 for 10 years at 10% interest.
They could pay $100 in interest each year.

After 10 years, they would have paid $1,000.
They would still owe the principle that they had borrowed.
The car would have depreciated to zero.
This person owes a debt, but has no asset.
They could pay $200 each year.
This would eliminate the debt,
but at the end of 10 years, they would still have no car.
They would have to roll over the loan and buy a new car.

The loan is a poor decision for a consumer.

Speculation Loan for some residential land
A person borrows $100,000 for 10 years at 10% interest.
They could pay $10000 in interest each year.

After 10 years, they would have paid $100,000.
They would still owe the principle that they had borrowed.
The price of the land would have inflated to $200,000.
This person owes a debt, but they have an asset that had doubled in price.

The loan has been good for the property speculator,
but at the end of 10 years,
the land has produced nothing
and there is no more land in the economy,
so the savings lent to the property speculator have been unproductive.