Debt buyers refer to the companies that purchase old debts from original creditors, intermediary or another debt buyer. The debts they buy include the one arises from credit cards, automobile loans, mortgages, retail accounts, etc.
Debt buyers are usually small and private businesses and unlike collection agency, they actually own the debt. To buy the debts, debt buyers can either collect it on their own or hire a collection agency to recover the debt. When they purchase the debts, they generally pay a small fraction of the debt’s face value since the ones they buy are delinquent (borrowers fail to pay their debt) or charged-off (creditors write off the debts).
Why do we need debt buyers?
As we just mentioned, the debts that debt buyers purchase are delinquent or charged-off. Therefore, for the creditors, it is highly possible to lose all their money and it is not wise for them to hold them till the end. As a result, creditors or lenders will choose to sell their debts to a debt buyer, even for a very low price. In this way, they will at least reclaim some money back.
How can debt buyers earn money?
Buying debts is a multi-billion-dollar industry since debt buyers will always gain profit. One of the most obvious reasons is that they only need to pay a very low price to purchases the debts. Due to this, as long as a small repayment has been made, debt buyers can gain the profit.
Also, considering the fact that debt buyers usually buy tons of old debts, thus a fraction of repayment will generate significant profit. Meanwhile, unlike original creditors, debt buyers are more flexible about recovering the debts. They can pursue various strategies such as setting new terms for repayment or hiring a collection agency to force borrowers to pay the loans.