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Creditors: What’s Behind Their Interest in Investing in Your Debt?

Personal_Finance / Debt & Loans Feb 16, 2016 - 10:55 AM GMT

By: Boris_Dzhingarov

Personal_Finance According to some definitions, debts are financial obligations defined by law, that must be repaid to a creditor or lender who have invested certain amount of money and have decide to take a risk by borrowing money. In other words, they were fully aware that the loan taker might not be able to pay off the debt. But, it is an interesting fact that even though there is great risk involved in this activity and there are many people who fail to repay the money, the number of lenders and creditors is growing. So, why is this happening?


To put it simply, creditors are making profit from other people’s debt. As a matter of fact, they earn even more money from these debts when people are failing to pay the scheduled payments (usually monthly payments). They are secured with high interest rates and fees that will automatically be transferred to your credit account because of your inability to pay on time. The truth is that the largest portion of their profit is based on these activities.

Of course, there are some other completely different reasons why lenders/creditors are interested in investing in other people’s debt. To start with, people who are in default of a secured loan from a financial organization, creditors are able to foreclose your home. This is only possible if the home is used to secure the loan. In addition, they can seize your vehicle or any other valuable item that you possess as long as you have agreed to use these items as collaterals for the debt. So, it is better to think twice before making these deals. For instance,best car finance deals usually don’t require such collaterals.

Furthermore, the vast majority of debts related to credit cards are not secured with physical property, in case your bills are not paid, the creditor can simply file a lawsuit which will result in insured bonds. Creditors don’t analyze too much before they invest in your debt because these creditors are well aware that the insured bonds and lawsuits can bring them even more money in case something goes wrong. There are many creditors that are prepared to provide so-called settlement solutions. In this way they are providing other repayment solutions and make it look like some other entity is providing the settlement solution even though they are the ones that stand behind it.

So, keep in mind that even though there are many benefits of using creditors’ help, the truth is that you should think twice before using their help. They are not charities where people can borrow some money and repay whenever they can. Of course, this doesn’t mean that people should view them as entities that are making profit from other people’s misery. They need to be realistic and do whatever they can to repay their debt in a timely manner.

Finally, don’t forget to check and analyze every plan offered by your creditors before signing a deal.

By Boris Dzhingarov

© 2016 Copyright Boris Dzhingarov - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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