How Financial Institutions Benefit From Bad Debt

When you borrow from friends and relatives, terms of payments are ever flexible no matter how bad the debt is. This type of flexibilities is not found with financial institutions and failing to pay up debt might only mean your property will end up being auctioned. Banks and money lending institutions are there to make money and in every deal they engage in should lead to recovery of the money they lend out and make profits by imposing interest rates. There are several debt assistance programs that are recognized by law to help you out in an event where you are unable to pay up the money in the required duration at the given rate of interest. This debt help plans include consolidating various debt into one debt, Individual Voluntary Agreement and one that apply within the Scottish jurisdiction called Trust Deed fund. All this debt help programs are designed to save you from filing for bankruptcy, the most severe way of managing your debt.

Given the great deal of concern of this debt help programs show to the consumer, there is also a way the financial institutions benefit from offering this kind of arrangements. One such benefit is that when you consolidate your debt, you are turning unsecured loans to secured loans, putting property such as your house into risk. In an event where you fail to pay, the financial institutions come in and auction those properties to recover their money. Another avenue which financial institutions capitalize on to make money is credit card debt. Failure to clear up the amount at specified duration, you begin paying the loan at a compounded interest.  When the consumer moves to zero interest rates and makes late payments, the payments will be done at a reversed standard rate. This in turn translates to profits to the financial institution offering the services.