I’ve read a lot about how if you choose to not pay off your debt, it gets sold to a collection agency and then that there’s apparently no way for them to force you to pay it off. But I mean I doubt there’s no way that, that doesn’t impact you negatively. If it didn’t, everybody would not pay back mortgages, medical bills, etc. but if everyone did that, banks wouldn’t give out loans and hospitals would run to the ground if they got no money back, no? I’m kinda confused, how does this work?
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Yes, it would. At the very least it would increase the cost of borrowing overall, which is really the same thing.
Banks price loans based of the probability of default and expected loss given default, i.e. what they expect to recover. Higher default probability leads to higher borrowing rates, although it’s not necessarily a direct linkage. The indirect linkage involves complex banking concepts that are more difficult to explain.
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