If you just got a loan, you might see “vig” on the statement and are wondering what this means. What is a vig? What does vig mean on a loan?
A vig on a loan refers to the interest charged to a loan. Vig is a slang term for interest rate or the amount of interest. The term “vig” is derived from the word “vigorish,” which bookmakers use to describe the percentage of the bet amount they take as a profit.
Read on to learn more about the meaning of “vig” on a loan and when gambling or betting.
What Is a Vig?
The term “vig” is derived from the word “vigorish.” It means “the percentage deducted from a gambler’s winnings by the organizers of a game,” according to Oxford Languages.
Experts believe that the word “vigorish” was derived from a Yiddish word related to the card game known as “Stuss” or “Jewish Faro”. It is also presumed that the Yiddish word originated from the Russian word “vyigrysh,” which means winnings or gains.
The modern spelling “vigorish” first appeared in 1913. People frequently used it during that time, but by 1920, people barely used the word anymore. However, the term was again used in the 1930s to refer to the interest on a loan.
Since the early 2000s, the term “vigorish” is once again being used often in the world of gambling. Most of the time, it is shortened to “vig.” So now, you understand what a vig is in gambling.
Through the years, how the slang term “vig” is being used has started to evolve. Now, it also refers to any “interest payment on a loan paid back to the creditor by a certain percent,” according to Urban Dictionary.
In essence, the synonyms of “vig” are ante, allowance, or fee.
What Is a Vig in Gambling?
For sure, you have placed a sports bet with your friends one way or the other. The rule is simple, wherein you will place a $10 bet, so you will also gain a $10 win. When you lose, you lose $10 too.
This is not the case when you bet with a professional bookmaker. If you place a $10 bet and win, you will receive a little less than $10.
Why? This is because you have to pay for the services of the bookmaker. This is what you call the vig. Other times, it is called the “juice” or the “cut.”
A bookmaker is also known as a “bookie.” They are gambling facilitators. Most of the time, they facilitate sporting events. They set odds, they accept and place bets, and they pay out winnings on people’s behalf.
The Standard Vig
The standard vig is 10%. This means that for every wager of $1.10, you only take $1 of winnings.
When you look at the point spreads posted by a bookmaker, it more or less looks like this:
|Los Angeles Chargers||+2.5 (-110)|
|Baltimore Ravens||-2.5 (-110)|
The last column corresponds to your actual take plus the vig. Suffice it to say that the objective of the bookmaker is to make a point spread that will result in an equal amount of action from both sides of the line.
This setup protects bookmakers from significant losses. It will also prevent them from experiencing the losses encountered during the 2018 National Football League (NFL) season. In Week 9 of this NFL season, the teams that received most of the action suddenly went 11-0.
In a gambling event facilitated by the online gambling company William Hill, the Kansas City Chiefs earned 90 percent of the point spread bets placed on its match against the Cleveland Browns. The Chiefs went on winning by a total of 16 points on a spread of 8 points.
This resulted in the losses incurred by William Hall amounting to almost $10 million. It was all because their point spread failed to create equal action. If there was a vig, they could have protected themselves against losses. If not, at least they could have ensured a profit in the event of equal action.
Vig in “The Sopranos”
In the American crime drama television series titled “The Sopranos,” the term “vig” has been mentioned on several occasions. The characters mention it when they are talking about lending money. It is not a common term used in financial institutions. Nonetheless, it has become a popular slang term.
In “The Sopranos,” loan sharks are most of the time a topic. So, when they say “vig” in the middle of a conversation about loan sharks, they most likely refer to the interest paid in cash. Suffice it to say that the characters, specifically Tony Soprano, talk about vig as a straight profit.
However, the term “vig on a loan” does not always mean the amount of interest paid upfront or paid in cash in the real world. Instead, “vig on a loan” is rolled into the loan payments.
So, for instance, if you have a bank loan, you most likely pay it monthly. However, you don’t only pay the amount you have loaned. Instead, you also pay the monthly interest — in which case, the vig.
Can You Avoid Paying the Vig?
In case you are wondering if you can avoid paying the vig, the answer is no. You can consider it as a transaction fee or a service fee. It’s basically the same as the service fee you pay when dining in a restaurant or when getting any other types of services.
However, while you can’t avoid paying the vig, you can find a way to avoid paying 10%. There are bets wherein the vig deducted from your wager is lower than 10%.
As the bets start coming in, the point spread also starts moving in the direction where public action occurs. When this happens, the vig moves too. So, it is not surprising to encounter low numbers posted, such as -105 or -103. It all depends on where the wagers fall.
It is also possible for the vig to vary while the point spread remains the same. If the action is equally spread out, there is a likelihood that the share of the bookie will considerably drop. If bettors are facing low risk, this would most likely mean a low vig.
On the contrary, when there is not much action in the game, the bookie’s margin for error decreases. The level of risk they face increases, and the vig will most likely increase too.
The popularity and growth of the sportsbook industry have made it more and more competitive in nature. This favors bettors as there is a possibility of finding spreads with a low vig. In fact, some sportsbooks pay the vig on first-time wagers.
Can You Trust a Lender That Uses the Term “Vig”?
Lenders will most likely NOT use the term “vig.” Instead, they will use the term “interest” in all their documents or talk to clients.
“Vig” is a word that has a negative connotation since it is associated with gambling, loan sharks, or mob. Besides, not everyone knows this term. So, when you hear lenders mention this term, it is understandable to feel hesitant about their credibility.
However, it also doesn’t necessarily mean that just because you encounter several lenders saying “vig,” they don’t have a good reputation. More than anything else, refer to the credentials of the lenders. Check if they are licensed, if they operate following the law and if they practice transparency. Exercise due diligence and see if the lenders have good track records.
Again, what does vig mean? A vig on loan refers to the interest charged to a loan. Vig is a slang term for interest rate or the amount of interest. When gambling, the vig is the percentage deducted from a gambler’s winnings by the organizers of a game.
Next, let’s look at how vig works on a loan.
How Does Vig Work on a Loan?
The vig, or the interest, is a fee that you have to pay when you borrow money. Even when you apply for bank loans or housing loans, among others, you will always be charged interest. This is basically how financial institutions earn from the money you borrow from them.
When taking out a loan, its interest is computed as a percentage of the total amount of your loan. The amount of interest depends on several factors, which include the following:
- Interest rate
- Amount of your loan
- Payment terms of your loan
Higher amounts of loans, such as automotive loans or mortgages, are mostly charged with lower interest rates. They can also have longer payment terms compared to personal debt consolidation loans.
Financial institutions structured loan and interest payments so that they wouldn’t have to skyrocket interest rates. For example, spreading the total amount for 30 years means that the financial institution will earn from the interest for 30 years. At the same time, longer payment terms make it more affordable for the client.
The interest is computed according to the amount of your current loan. So, let’s say you decide to pay down your principal loan amount. This will also lower the amount of interest that you will pay.
What Are Loan Sharks?
The term “vig” is often associated with loan sharks. But what exactly are loan sharks?
Loan sharks are people or entities that lend money at exceedingly high-interest rates. What’s worse is that they sometimes use threats of violence when collecting debts. The interest rates they charge are extremely beyond the established legal rate. In most cases, loan sharks are part of organized crime groups.
In the 1960s, the term “vigorish” was mentioned during the New York State Investigation Commission hearings on loan sharks. Witnesses referred to the unreasonably high interest charged by usurers as “vigorish.”
How Loan Sharks Work
Loan sharks are everywhere. They can be in under-banked neighborhoods, or you may find them through your personal networks. In this age of the Internet, you can find them online too. In most cases, their funds come from unidentified sources. Also, they work for unregistered entities or personal businesses.
It is easy to borrow money from loan sharks. You will not be subject to any background checks or credit reports. Unlike when you apply for a bank loan, you will be subject to an extensive background check. Sadly, if you don’t have an impressive credit history, they will not approve your loan application.
With loan sharks, you don’t have to worry about being disapproved. You can borrow any amount of money. Loan sharks prefer to lend huge sums of money to gain high returns in a short span of time. This means that aside from the high vig, they also only provide short payment terms.
Suffice it to say that loan sharks do not really intend to help those who need money. They merely do this for their personal advantage.
Conclusion – What Does Vig Mean on a Loan?
A vig on loan means an interest charged to a loan. Vig is a slang term for interest rate or the amount of interest. The term “vig” originated from the word “vigorish,” which bookmakers use to describe the percentage of the bet amount they take as a profit.
Those working in financial institutions are familiar with the term “vig” or “vigorish.” However, they don’t use this slang term in business communication, whether verbal or written. Instead, they use the term “interest.”
If you encounter lenders who use the term “vig,” practice due diligence in checking their credibility. It doesn’t necessarily mean that lenders who use this slang term have a bad reputation. However, you have to be vigilant when borrowing money. The last thing you want to happen is to deal with loan sharks.