September 22, 2024

Standard interest rates on credit cards of most domestic banks, for example, are around 20%. Even higher rates can charged on loans with very short repayment periods (e.g. up to one month). Investing in loans carries risk just like any other investment. It is then priced into the investment environment by the interest rate. Providers take the same approach to lending and the rates at which they offer loans reflect the risk profile of the borrower. Providers also often achieve higher returns for investors when financing entrepreneurs who have, for example, appropriate collateral but are unable to demonstrate sufficient history and creditworthiness to the bank. The interest rate then reflects their risk profile. However, thanks to their entrepreneurial spirit, they are often able to pay a higher interest rate.

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