When it comes to selling debt, it’s not uncommon to wonder if the benefits outweigh the disadvantages. You’re unlikely to get a fantastic rate in terms of the outstanding balance of the loans, sometimes selling at only pennies to the pound. But you could actually save money in the long run – this is why it’s important to look at the bigger picture and determine whether selling on debt is the best choice for you.
What is Debt Sale?
As a lender, you’ll be aware of the unfortunate truth – not everyone will repay their loan. Regardless of how many credibility and affordability checks you run, there will always be a small percentage of consumers who have no intention of paying back the money. Some people of course will be affected by circumstances outside their control and won’t be able to repay the debt, but these individuals will generally work with you to set up a repayment arrangement. With debt sale, you’re looking to pass on older debts which you’ve been unable to collect.
So why do lenders decide to sell debt rather than try and collect it themselves? Essentially, there comes a time when the business has to consider whether chasing the debt is becoming more costly than it’s actually worth. It might be better to simply cut your losses and get some money for the loan.
Selling a UK Debt
When faced with older debt that they’re unable to collect, many creditors choose to sell it to a third party. Debt purchasers will have far more experience in collecting bad debt and should be able to recover the funds quickly and efficiently.
Once the debt has been sold, the lender no longer has any involvement in the loan. The purchaser will effectively become the new creditor, with the borrowers making repayments to them moving forward. It is important to note that as both lenders and debt purchasers are governed by the same financial regulations and guidelines, the customer will always be treated fairly. And the debt buyer will not be able to amend the terms of the original agreement.
For instance, if the loan had reached an interest cap, and the lender could no longer apply further interest or charges, the debt purchaser would not be able to either. They may however have other policies in place, such as pursuing court action, that the lender chose not to proceed with.
In terms of buying debt, a debt purchaser will buy outstanding debt from a lender, usually as part of a larger portfolio. This portfolio will be made up of similar debts, such as loans of similar values, or loans that were taken out around the same time. So why do companies buy debt? The lender will have undoubtedly already chased the debt and won’t have been able to collect the amount due.
The reason debt purchasers choose to buy old debt is that they can get it at an incredibly low rate. While the outstanding balance could be £1,000, they may be able to purchase the contract for £50. This means that as long as the debt buyer is able to collect just a fraction of the balance, they will make a profit. And as debt purchasers can often be more flexible in their collection methods, like issuing a CCJ, they are likely to reclaim much of the money owed.
Benefits of Selling Debt
Overall, selling on bad debt as a lender should be worth it – debt sale comes with a number of advantages. There is the obvious benefit of getting rid of older debt, freeing up the time and resources of employees, and allowing them to focus on what they do best. But you may not realise that this in turn comes with advantages – allowing your staff to concentrate on early stage collections should lead to a more engaged and happier workforce. Chasing bad debt can become demoralising if you have not had experience and training in the processes involved.
Advantages of Selling Debt Through a Broker
If you do decide that selling your old debts is the best option for you, you may wish to consider working with a debt broker like EverChain UK. We can help you securely load your portfolio, and then market it to our buyer network. That way, you won’t need to worry about comparing individual debt purchasers – they will bid on your portfolio, meaning you’ll get the best possible price.
Another benefit of selling through EverChain UK is that you’ll get a quick cash injection into your business. After chasing old debt for a significant amount of time, it can be a relief to sell it on and reclaim some of your funds. And because our platform allows you to not only review bids, but also compare things like buyer/agency complaint trends and ratios, you can be confident that you’re choosing a suitable buyer.