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Lenders want to lend

June 11, 2018

Lenders want to lend you money, in fact they are looking for ways to be able to lend you money. To lenders lending is a product just like any other. Lending money is a sure way to make money if you can mitigate the risk of borrowers not repaying debts. The good news is that most borrowers do repay loans (of all descriptions) and less than 4% of credit card holders are likely to default.

In other words, if you loan $1 million on credit cards to one hundred people, each with a limit of $10,000 and an interest rate of 15% at the end of the year you would generate about $154,000 in interest so if only 4% defaulted you would still be up $114,000. Of course, nothing is quite as straight line in the lending business, some borrowers don’t use all their available credit, some pay off in full each month and some might pay for 9 months out of the year before they default.

Lenders use complicated algorithms to determine your credit worthiness and the risk of you repaying your debts. But one thing you can be sure of is that they want to lend.