I’ve seen stories of individuals buying up a bunch of debt for cents on the dollar then just forgiving it. Why can’t this been done on an individual scale?
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Think of bonds. Bonds a debt instrument. You buy a bond for a set amount at a certain rate for a set term, say $10,000 at 5% for 10 years. The bond issuer, usually a bank or a government, pays you a monthly coupon of $106. If you hold that bond, you get $106 for 10 years, recouping your original loan, plus a couple grand in interest.
Let’s say that 2 years into the bond, you decide you need cash. You find a buyer, who will give you $8k for the bond. That’s less than what you would have made had you held onto it, but you get the cash now. He takes the bond and gives you $8k. Now he gets the remaining monthly coupon payments and you are done with the deal.
When you take out a loan from the bank, the bank sells packages of these loans in bonds. These bonds are rated based on risk and current interest rates and sold as such.
You certainly could do this individually, but the logistics are harder. If your mom loans your brother money, and you pay your mom to take the loan, then you get the payments from your brother.
You can pay off your loans early depending on the terms. The lender gets less interest but gets the money repaid faster. A bank can use that money to issue new debt to other borrowers.
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