In an ideal world, every borrower would repay their debts on time and every lender would earn a living from the interest or other income earned over the lifetime of the agreement. In the real world however, there is an inherent risk that a borrower will not repay the credit advanced to them. This could be for any one of a number of reasons, ranging from poor financial management or loss of employment, to family breakdown or death. A credit business will only be profitable if the return from those that repay their debts exceeds the losses where default has occurred.
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