Market Discussions

Collateralized loans work because lenders have adequate incentive to maintain a trustworthy reputation so as to be able to continue to make loan transactions.

Uncollateralized loans don't work; and if you see them happening on here, it's just one guy talking to his own alts trying to build up for a scam.

The lender is reliable, he is the one who has an incentive to maintain a reputation, as he can make more money from successfully completing multiple loans than he can by just keeping the collateral from one loan.

The borrower is borrowing less than the face value of the collateral he is depositing with the lender, almost always because these items are hard to move quickly and/or in bulk, so the borrower is actually better off just paying interest than getting a much lower value by trying to sell his collateral.

I hope this clears it up. If not, please feel free to ask for further elaboration. I like to read my own words.

Here's examples of both:


COLLATERALIZED LOAN

Player A needs ISK and is willing to put up their Hulk as collateral.
Player B offers Player A 300 million ISK at 5% for 30 days.
Player A accepts, and gives the Hulk to Player B in exchange for 300 million ISK.
Player A then has 30 days (or whatever they agree on) to return the 300 million ISK plus interest (let's say 5%, so 15 million ISK on top of the 300 million = 315 million ISK owed to Player B within 30 days).

30 days later one of the following happens:

Player A pays Player B 315 million ISK. Player B returns the Hulk to Player A. Both players walk away happy.

or

Player A doesn't pay. Player B keeps the Hulk.

or

Player A contacts Player B asking for an extension and they re-negotiate the terms of the agreement.

Generally speaking, the loan will be for 75-95% of the market value of the collateral. So the example above assumed the Hulk was worth about 400 million ISK.

UNCOLLATERALIZED LOAN

Player A needs ISK.
Player B offers Player A 300 million ISK at 12% for 30 days.
Player A accepts, Player B sends 300 million ISK.

30 days later one of the following happens:

Player A pays Player B 336 million ISK (300 million plus 12% interest which works out to 336 million ISK)

or

(most likely to happen)
Player A doesn't pay back the money. Player B gets angry.

or

Player A tries to renegotiate the terms of the loan.


Interest rates on uncollateralized loans tend to be much higher since there is much greater risk to the lender.

Must... Not... Make... Juggalo... Joke.







edit: screw it. Clowny Daggers!!!!!!!

Tbh, I was wondering the same thing, ie how do loans work. It seems difficult to fathom that it actually works with all of the treachery that exists in Eve. The number of scams in Jita local is absolutely astounding, for example.

Loans are a laundering mechanism for the RMT industry.

Without sufficient collateral there are no guarantees of repayment.

That being stated, I'm currently operating my second no-collateral bond of 10b. My first 10b no-collateral bond was public, and the investors that didn't know me took a risk by investing with me. I repaid them in full with 23.5% interest (3 months = 7.5% + 7.5% + 7.5% + 1% bonus) for taking the risk. My second no-collateral 10b bond was filled privately, and has an indefinite term @ 5% per month (okay, it is more of a loan than a bond, and it is more than keeping the investor in PLEX).

It probably works because there are enough legitimate investments to make the risk of a scam seem to be worth the reward to some people. Similar to investing in stocks in the real world, the investor can take steps to reduce the risks from obvious frauds, but never completely eliminate risk.