My first foray into Peer Directed Banking: The Credit Unicorn
by Nick Farr on July 23, 2009
in Economic Theory, Peer Directed Banking
Nickf4rr: @bre Try credit unions instead. [link]
johl: @Nickf4rr I misread that as “credit unicorns” and thought it was awesome. [link]
Nickf4rr: @johl I make you this solemn vow: Credit unicorns will be a real, viable financial product before I retire.
Since making this solemn vow, I’ve been consumed with designing a financial product or service worthy of the name “credit unicorn”. Somehow, after chuckling to myself about snakes on my girlfriend’s flight to Portland, it hit me. The credit unicorn should take on credit card debt!
The credit unicorn is my first experiment with Peer Directed Banking. Cloud Banking, while catchy, never quite caught captured the essence of the fundamental shift banking I envision. Our savings are in a cloud right now–out there, somewhere. What we really need is the ability to direct where our savings go, to have a solid grasp over what our money is doing.
All well and good, but it needs to start somewhere. So here goes:
The Credit Unicorn
The Credit Unicorn is an installment loan financed by individual savings, designed to replace and encourage the retirement of high interest rate revolving debt (i.e. Credit Cards). It works like this:
- The borrower of a high interest rate card agrees to surrender it.
- The Credit Unicorn will pay the balance in full and cancel the card.
- The borrower makes minimum payments into the CU that are twice as large as those required by the card in exchange for half the interest rate (or 3x as large for 1/3rd the interest rate, and so on) until the balance is paid off.
- The lender/s keep the interest payments, less a small amount for insurance, payment fees, etc.
It’s a simple idea that I believe will connect those looking to get better returns on savings with those who really need to learn to save.
Anyone interested?
