Hello!
I just watched “Buffaloed”- a movie on Hulu… which goes into great detail about debt collectors in America. How they buy debt from banks for pennies on the dollar, and then come after debtors for the full debt making immense profit when the “debt” is repaid.
My question is, why does the bank need to sell the debt?
To whom does the bank owe money too?
I know banks give loans, but where do they get that money?
I know they can make profits off interest, but would that not take YEARSS to do before seeing profits large enough to dish out real cash to borrowers in a newly established bank?
I see how it all just cycles basically but my brain still doesn’t fully comprehend.
Maybe I’m asking for too much, and if I am and nobody has the time to explain- maybe someone could point me into the direction of educational material online because I’m not finding much on Google that doesn’t give me a headache because there is oftentimes a lot of financial jargon.
And before I get roasted, I went to a sh-t public school system deep in the rural south and I am still young, so please excuse me for my very very shallow understanding of all of this.
In: 5
Say you owe the bank $10,000 that you haven’t paid for 10 years. The bank is starting to lose hope they’ll ever get that money back.
Then a debt collector approaches the bank and says ‘we’ll buy the **rights** to that $10,000 from you for $2,000 that we can pay you **right now**.’ The debt collector taking a risk because they don’t know if they can get the $10,000 from you.
The bank then decides they’d rather have the $2,000 now than the $10,000 they’re actually owed, because they don’t actually think they’ll be able to get the $10,000 back from you.
The debt collector then goes after you for the $10,000 you owe, and if they are successful in collecting, they essentially made an $8,000 profit off of buying *your* debt from the bank you owed it to.
When you ‘sell debt’ you’re essentially just selling the right to collect money that was originally owed to you, but is now owed to the purchaser of that debt.
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