Making Debt Pay - Use Credit To Your Advantage
This isn't something that happens all that often, but right now, there are ways to make money from being in debt. In this article, we show you how.
Declaration of Our Interests
As everyone knows, we operate within the lending industry; we make money when people get into debt. Nobody will make money taking on any debt from our website, and interest rates are higher than inflation. Nowhere within this article will you find any sales pitch for any of our own products. Our products are entirely different from those we will be commenting on.
Earning money from debt
Making money from debt is usually the domain of the rich and powerful, but right now, it has flowed down to the man on the street. Everyone has an opportunity now to make money from borrowing.
In a nutshell, inflation is rising, it currently sits well above 10%, so signing up for a credit product that is charging 7-8% will result in a real-time profit. With no signs of inflation easing any time soon, this could be a very profitable financial vehicle that people should consider.
The credit product has to have a fixed interest rate to benefit from debt. One that does not go up and down every time the Bank of England looks at the numbers. The second condition would be that the interest rates are less than the actual inflation rate. As of February 2022, some unsecured personal loans are less than 7% for those with excellent credit records.
Secured debt is always cheaper than unsecured debt. For the average person, secured debt is the way to get credit at less than 10%. Cars, bikes, mortgages are all types of loans that would often be available for less than 5%.
Real World Example
We hear stories from the new car sales industry, they are telling us that people are taking out fixed credit products to pay for cars that will not turn up for 12 months.
With inflation running at 10%, this means that they are effectively obtaining the vehicle 10% cheaper if they're willing to wait.
Buying A New Car
1) Jan 1st 2022, customer agrees to buy a vehicle for £100,000. The sale price is fixed an interest rate of 5% fixed.
The customer doesn't start paying for the car until it arrives. Customers are quoted 10-12 months for delivery on some new models.
2) Jan 1st 2023 Customer takes ownership of the vehicle, but with inflation over the last year being 10%, that £100,000 they agreed to in 2022 is effectively £90,000 in 2023.
Not only that, but the interest rates being locked in at 5% means that they will stay at 5% even if the Car finance company changes the interest rates later on.
The No-lose gamble
What if interest rates go down? What if inflation goes down between signing? The agreement and taking ownership of the vehicle? We looked into this, all of the major car manufacturers will offer a no quibble cancellation term within their agreement.
Buyers can cancel their orders at any time and get back any money they paid as a deposit. This is a no-lose gamble that could see people earn up to 10%. As we've said, we are hearing stories of this tactic being used by savvy car buyers. It's well worth looking into, especially if inflation starts to accelerate up towards 20%- 30% per year, which is unlikely but not unfeasible.
Why are still they offering cheap credit?
That's another excellent question. It appears that central banks and finance providers are caught in some delusion. It last happened in the run-up to 2007. They will not admit or address the threat of inflation. Your average bank won't care, when they sign customers up to fixed debt, they have already secured that debt from more prominent players (Central Banks).
It could be that they don't want to spook the man on the street by accepting inflation is that bad. Raising rates would undoubtedly do that, which would send inflation even higher.
At some point, they're going to need to, but right now, this is not your problem. As long as the debt is fixed and will not rise throughout the term of your loan, you can use this as almost free money and as that is as good as it gets for borrowers.