The Daily Alaska empire., 1934-12-13

one check and pay off the loan. He would have had a per cent loan, he would have accumulated
 the repaying fund in checking
 account on which, by law, he
 would have received no interest,
 and that would have been a real"
 per cent loan. No one would dis pute that.
 Per Cent Limit
 No one would say that because
 this customer kept depositing
 few dollars in a checking account
 so he could pay off his loan you
 should count the theoretical loss
 he sustained from not being able
 to invest the money at per cent
 as part of the interest charge on
 the loan
 That is almost identically the way the transaction is handled for a borrower on the Modernization i Credit Plan. He pays 5 per cent
 discount-never more, because the Government won't permit it. But because this plan is intended for ,non-depositors, part ularly for those who haven't been able to borrow for some years, the Gov ernment requires that payments be
 made Gin effect about the same as is necessary to the collateral bor- srower) in definite monthly install ments. On these payments, as a rule, he gets no interest, just like
 the checking account customer re- ferred to. The fact that the month ly installments are required oy contract is to the borrowers advan- tage. That is sure-fire safety de- vice against forgetting to pay" The monthly installment plan, with it's twelve to sixty payments, costs the bank more than if it were deal ing with collateral customers who would pay off in one lump sum. They can't handle such loans any other way, however.
 Whether or not the borrower saves up this monthly account by putting it into checking account, having it apply on his note or car rying it around in his pocket, does not make the slightest difference in the cost to him. The cost of the loan is only per cent related to that something we all think of as interest" when we mention loan costs. It is true, of course, that if he puts this money away safely in a bank either by means of deposits or payments, to insure that the loan will be taken care of, he pro- vides funds which the bank in turn can use to extend more credit. But that is exactly the same thing that happened when our checking account customer saved up his money in his checking account to pay up his loan
 Turnover Brings Profit
 Taking the two clements to- gether, the note and the accumu- lation plan, the bank is able to turn over it's funds on a basis that will bring an amount greater than } per cent on the original loan, but that is always true on every bank Ing transaction It is the only thing that makes it possible for banks to keep alive.
 '\When all is said and done, the [ property owner, without the re- quirement of checking account, { without any collateral except his earning power and his good name, gets a 5 per cent loan, just as surely as the Collateral borrower. (And there are many places where E the latter cannot get credit so cheaply.)
 The mathematical ratio be- tween gross return and average balance outstanding" exists almost exactly the same-and sometimes 1t higher figure-in every bor- owing relationship. It is often overlooked that the simple discount arrangement of the Modernization Credit Plan includes in one pack age the three things that have to 'e considered together in an ordi- ' nary loan:
 "1. The cost of the credit;
 "'2. The cost of the repayment olan, paid for in the lower return ,r no return on accumulating 'ums, and
 "'3. The deposit account which dds to the ratio" of the ordinary customer, but as a special con- cesSiOn is absent in the Moderni- |