When you take a loan, the bank can “sell” your loan to an investor. What does that process look like, and why would an investor want to buy loans?
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ELI5: You gave your brother four dollars, and he will give you back eight dollars, one dollar a week for two months. But now you need five dollars for something. So your sister gives you five dollars and will get your brother’s eight dollars. Your brother gets the four dollars he needs, you make a dollar and your sister makes three dollars.
non-ELI5: it basically has to do with who has more money, and who needs it quicker. Guy getting the loan clearly needs money the quickest. Bank has money but also offers lots of other services that it needs money to finance. Investors just invest and pay out money, so they have a lot more money for a very specific thing.
In a weird way it’s kinda like oil and vinegar, the money will just sorta ‘settle’ eventually where it’s supposed to.
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