Each time you take out a loan it will drain your monthly income. So you can't keep taking them indefinitely. And they cost more to pay back than the give, because of interest.
No penalty for endless loans? Hello?? RE: quill18's
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There's a max limit of loans, and once that is hit, and you treasury is being drained I would have guessed there to be some kind of bankruptcy-event as per earlier titles in the franschise, but in the demo (I tested it with Portugal a few seconds ago) you just get continual loans which continue to rack up your inflation and interest. Quite sure that's a bug though since you eventually hit a level of interest where you cannot possibly get out of the downward spiral, making recovery impossible.
Edit: I was wrong. There is a bankruptcy-event, but you can only manually take that many loans (76 for Portugal) after which it can go up to 90, giving you a buffer for financial reform and reducing your costs before bankruptcy. When you hit bottom you loose all monarch-points, raise inflation somewhat (not by much though), drops stability by 3 and drops legitimacy and prestige by 100. After bankrupting Portugal over a year I was left with only 4.15% inflation though, which seems much too little. I would have expected a rise by 10% at least by the bankruptcy.
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Thank you Phantomnium I completely understand what you are saying and yes that is how loans work theoretically. However, I've been repeating that this doesn't isn't a factor in practice, because the game allows you to take loan after loan.
Basically it seems that the negative economic effects of any amount of loans can simply be disregarded because you can continue to take loans till kingdom come by which point the game is already over.
I am reading your replies and appreciate them very much, and would also appreciate if you try to understand what I am saying here, too.
Basically it seems that the negative economic effects of any amount of loans can simply be disregarded because you can continue to take loans till kingdom come by which point the game is already over.
I am reading your replies and appreciate them very much, and would also appreciate if you try to understand what I am saying here, too.
You pay interest monthly, and as soon as you cannot pay that monthly interest you go bankrupt. Taking out 50 loans when you cant afford the interest means you'll be bankrupt in a month.
Ah well that's a relief to hear. It stands to reason that recovery is impossible. However, in the demo it seems that doesnt matter because you never need to recover so long as there's a neverending supply of loans
I would hope that the penalty for the eventual bankrupcy is very severe, otherwise I'd be a bit disappointed in how easily you can run a country on imaginary funds. (Hello U.S.A.)
It can't be disregarded, you take a loan and you incur interest and inflation, you have to pay more than the initial amount of the loan as interest, with money that is now worth marginally less than it was before the Loan because it incurred inflation. You can keep taking them up until you either A) hit a hard coded limit (it seems high) or B) your interest rates monthly / yearly outgrow the money your country makes. You hit that mark and you have to file for bankruptcy. The road to doing so is obviously a very nasty spiral.
Oh i see! What happens when you're bankrupt? What is the effect of bankrupcy?
Debt is wiped.
Higher future interest rates for borrowing.
Lower moral for armies.
Potential revolts.
Well eventually you'll have to repay those loans or suffer a constant drain on your economy (the interest), which will only get higher as you extend your loans.
If you borrow 100 gold for 5 years at a mere 4% rate you'll still have to eventually pay back both the 100g and the 20 in interest. If you don't have that, sure take another loan at an even worse interest.
Thing is, while paying back the 100g can be held off indefinitely the interest must always be paid, and it'll get higher and higher until you pay the loan back. You can borrow money for the interest too, but that'll lead to increased interest as well, and eventually the interest will surpass your income and you'll go bankrupt. Even if you stave off bankruptcy it will cost you a lot of money, so loans is an inefficient way to spend your money, a way to get a lot in the here and now at the expense of the future. Unless of course you manage to obtain something nice with the extra money you spent.
So it's not overpowered. If you take many loans to get some minor gains immediately rather than a little later you are crippling yourself.
If you borrow 100 gold for 5 years at a mere 4% rate you'll still have to eventually pay back both the 100g and the 20 in interest. If you don't have that, sure take another loan at an even worse interest.
Thing is, while paying back the 100g can be held off indefinitely the interest must always be paid, and it'll get higher and higher until you pay the loan back. You can borrow money for the interest too, but that'll lead to increased interest as well, and eventually the interest will surpass your income and you'll go bankrupt. Even if you stave off bankruptcy it will cost you a lot of money, so loans is an inefficient way to spend your money, a way to get a lot in the here and now at the expense of the future. Unless of course you manage to obtain something nice with the extra money you spent.
So it's not overpowered. If you take many loans to get some minor gains immediately rather than a little later you are crippling yourself.
Haha oh man. OK so I guess I've found the winning strategy? Live ridiciulously beyond your means, to the point where it's enough for you to get a HUGE advantage, and then just waive all of that in exchange for some comparably mild consequences that you'll easily be able to handle thanks to the power you've acquired via your spending spree. Woop.
Now I'm definitely disappointed.
Because you pay the interest over time (that's the income-drain), thus making the lender money as the lender still expects his full payment back in the end. Pushing the payback forward also raises the interest over the next five years, making the lender even more money.
OK that makes sense. However, if you compare the amount of power and resources you can get from about 1k in borrowed funds you never had to actually make, then at that point a bankrupcy isn't even that bad because it was worth it for the advantage you've acquired thanks to all that money.
OK but the lender will never get his initial loan back if you simply go bankrupt. Sure, your country suffers some consequences but they never get their money back. Wouldn't they kind of see that coming? lol
That isn't exactly it. I checked it out with Portugal and edited my earlier post (where I said there seemed to be no bankruptcy in the demo). It is much to mild though.
Edit: Well, most likely you will have hell for a few years, especially if your monarch is weak in ADM, but I expected much higher inflation, and thus future difficulties.
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That'd be a maybe. It depends on the exact effects of bankruptcy I THINK it also has effects on your economy and lasts for a long time. It certainly ought to (it did in EU3), and lead to huge inflation which will make everything you do more expensive.
In the real world nations have also voided loans before, many people gets ruined (including formerly rich people who lended the money out) and the economy suffers a bit of a depression and it hurts their reputation and prestige but ultimately I'm not sure how unrealistic it is. They'll just have to balance it so that the bankruptcy penalties are bad enough that it doesn't become the power-gaming strategy of choice.
I've checked it as well. Beside losing all your monarch points, money, advisors, mercenaries and -100 legitimacy and prestige (all of which hurts), your new loans' interest skyrocket (16% in my case) and your armies and navies get a -2 morale. That's huge. That means that you will fight your wars as if your maintenance sliders are set at zero when your maintenance is at full.
Hardly a winning strategy, especially as you cannot easily repeat it due to the much higher interest on further loans.
Hardly a winning strategy, especially as you cannot easily repeat it due to the much higher interest on further loans.