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Low-Income Individuals Purchasing Options

Merchants selling goods on credit to low-income customers often charge a very high rate of interest. The reasoning is that because low-income individuals are statistically more likely to default on loans, creditors must charge a high interest rate to protect themselves against the increased risk of default. If sellers are not allowed to charge high interest rates on credit purchases, low-income buyers will not be able to buy goods on credit.

How should a manager balance the need of low-income individuals to buy goods on credit with the need of businesses to make a profit? Is it ethical to charge such high rates of interest? Should there be a limit to what a seller can charge for credit purchases?

Solution Preview

This is an opinion question. In order to answer it, you will need to think about what interests and responsibilities both sides (the company and the customers) have.

In regards to the company, they likely have a fiduciary (or financial) responsibility to their stockholders and employees. If the company is not profitable, then they will be unable to pay stockholders, and even if they are not a public company, would eventually be unable to pay their employees. Thus, they will need to charge an amount of money that is ...

Solution Summary

Low income individuals for purchasing options are discussed. How managers should balance the need of low-income individuals to buy goods on credit with the need of businesses to make profits are examined.

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