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Key takeaways:
Selling unsecured subprime accounts like payday loans (PDL) and installment loans can be beneficial for lenders and financial institutions looking to offload high-risk debt from their portfolios. By selling these accounts, lenders can reduce their exposure to delinquencies and defaults, potentially recover some funds upfront, and redirect their resources toward more profitable lending activities.
Subprime lenders most often face the problem of non-payment; this is because debtors, when faced with financial difficulties, primarily do not pay debt with high-interest rates. This often leads to the fact that when issuing a loan, the lender puts these risks into the interest rate, making their loans even more expensive.
We observe that there are many PDL and Installment loan lenders on the market who have learned to use debt selling to increase the profitability of their business, reduce risks and increase the attractiveness of their loans. Debt selling has become an integral part of their business model. Understanding how debt selling and debt buying should be executed is essential for lenders looking to leverage this strategy effectively.
On average, lenders never collect 31% of 90 days delinquent debt accounts. Among 12 months delinquent, almost 76% of accounts will be written off by lenders. That’s why plenty of subprime lenders sell their 90-day delinquent accounts - turning their losses into profits.
Also, it is common to sell the execution of PDL accounts after they have been seasoned for 4-5 months because the subprime lenders have received a substantial part of the profit, and then they securitize the debt for 70-80% of the unpaid amount. Thus, immediately monetize its accounts and close the deal with a profit.
The difference in the price of PDL and Installment performing and non-performing debt is enormous and can reach a difference of 5 times. Therefore, it is a good practice in the market to sell performing accounts. If you're considering selling your debt portfolio, it's crucial to understand these dynamics and explore your options for maximizing the value of your assets.
The masked file is an Excel spreadsheet, which contains all information on debtors, while all Personal Identifier Information (PII) is masked. The information about the debt to be provided should include the following data: the geographical location of the debtor, the amount of debt, FICO score, history of payments, and judgment information.
Thus, there will be from 20 to 30 data fields in the masked file. For an example of the file, see below:
After signing the sale agreement, you must hand the documents to the buyer. The most optimal is the transmission in scanned form as the new owner can significantly speed up the process of getting started and reduce their costs for preparing files. Therefore, buyers are willing to pay more for documents in electronic form.
The best practice of sellers is to prepare documents for debtors in advance and put them on the end-to-end encrypted shared drive so that the transfer can be carried out quickly and safely.
Sellers who use these simple rules achieve a sale price 10-15% higher than those who do not follow them. But! There is also an important life hack to increase the price - regular sales. This allows you to form a network of buyers who are confident in the quality of your portfolio. Thus, in each subsequent purchase, they are willing to pay more and more.
Good Luck and Happy Bidding!
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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