[deleted]

Comments

• Tatar_Nobility@lemmy.ml ⁨8⁩ ⁨hours⁩ ago

  If he’s wealthy then he has a lot of assets which can serve as a guarantee for the creditor.

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  • TranquilTurbulence@lemmy.zip ⁨8⁩ ⁨hours⁩ ago

    Millionaires own land, commercial buildings, palaces, stocks, bonds, Lamborghinis and yachts that can pledged as collateral. Banks love to mitigate risks with assets that are easy to liquidate.

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• foggy@lemmy.world ⁨6⁩ ⁨hours⁩ ago

  Value of assets > value of loan

  Hes cash poor but has collateral.

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  • RowRowRowYourBot@sh.itjust.works ⁨5⁩ ⁨hours⁩ ago

    And likely has a history of repaying the loans he has. The bank is more than happy to lend money to someone with more assets than they are borrowing especially if they have a history of on time payment.

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• Opinionhaver@feddit.uk ⁨8⁩ ⁨hours⁩ ago

  It’s all about how certain the bank is that they’ll get their money back. Like you said, they’re very wealthy - so it may well be that their overall wealth is still greater than the amount they owe. Lending money is profitable for the bank as long as the borrower has the means to repay it, along with interest.

  This is actually how many wealthy people fund their living expenses. Their wealth is usually tied up in property and investments, and rather than selling those assets, it’s often easier to borrow money at a lower interest rate than what they’re profiting from their investments.

  For example, I could pay off my mortgage if I wanted to - but I won’t, because the average yearly return from stocks is around 7%, whereas the interest on my mortgage is 4.452%. The returns from my investments outweigh the cost of my debt.

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  • golli@lemm.ee ⁨7⁩ ⁨hours⁩ ago

    Another aspect of why it is more profitable is that it allows them to avoid paying taxes on sales and already accumulated profits, which is desirable because of the compound interest effect.

    I think if using something as collateral for a loan would create a taxable event and eliminate this advantage, then they would care a lot less about the arbitrage play between interest rates and average long term stock returns.

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• Yermaw@lemm.ee ⁨8⁩ ⁨hours⁩ ago

  There’s a lot of good explanations here already about details, but big picture - it’s a big club and you ain’t in it.

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• Endmaker@ani.social ⁨8⁩ ⁨hours⁩ ago

  The bank knows that:

  1. these people are able to pay it back
  2. it is more profitable for bank to continuously lend money to them (by charging interest on the loan)

  This is the same reason why some countries and companies are perpetually in debt.

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  • HK65@sopuli.xyz ⁨5⁩ ⁨hours⁩ ago

    some countries

    all countries

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• null_dot@lemmy.dbzer0.com ⁨7⁩ ⁨hours⁩ ago

  You might be thinking about debt from a personal finance angle - it’s costly, and borrowing money to buy a car isn’t ideal because you end up paying a lot more to own the car. In this context we’re taught that borrowing should be avoided, and if we really have to borrow we should pay it off as quickly as possible.

  In business it doesn’t really work that way. Often there’s no expectation that you will repay the money you borrow within any specific period of time. Banks are in the business of lending you money after all.

  Suppose you have $1m. Maybe you borrow $4m and buy a $5m farm. Things go well and in a few years your profit (after paying interest on that loan) is another $1m which you still have in the bank. You could pay down your debt, but then your profits would be more or less the same. Or… you could double your profits by borrowing more and buying another farm.

  Of course it’s not that simple and there’s lots of good reasons to pay down debt but I’m just trying to illustrate that paying it off is not always the objective.

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• Churbleyimyam@lemm.ee ⁨8⁩ ⁨hours⁩ ago

  If he keeps paying creditors back with interest then he will be regarded as a big walking cash machine.

  People with an appetite for maintaining large long-term debt are ideal customers for them.

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• dyathinkhesaurus@lemmy.world ⁨8⁩ ⁨hours⁩ ago

  If he’s able to service those debts, then he’s a good bet for the bank. They can keep making money off him. I suspect that if he’s not able to pay off those existing loans, they might have more of a problem lending him more.

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• loomy@lemy.lol ⁨7⁩ ⁨hours⁩ ago

  rich people can do whatever they want.

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• MrIamsosmrt@feddit.org ⁨7⁩ ⁨hours⁩ ago

  It’s not only for rich people. There are plenty of people who are in debt because of a mortage or student loans that can get loans for other stuff like financing a car.

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• Rhynoplaz@lemmy.world ⁨6⁩ ⁨hours⁩ ago

  That’s EXACTLY why they approved him.

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• cmgvd3lw@discuss.tchncs.de ⁨8⁩ ⁨hours⁩ ago

  Maybe good credit score?

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