For some borrowers, they may not be able to pay off all debts within the date specified in the loan contract. By using the probability of default as a financial probability index, banks can evaluate the possibility of a borrower's failure to repay the loan. Banks often make comprehensive judgments and calculate the default probability of a borrower through many factors. For those borrowers with a high probability of default, banks may offer them a high interest rate. On the contrary, for those borrowers who will hardly default, banks will welcome them to lend and offer them low interest rates.
In the following article, I want to tell you how to get a default probability through some specific and detailed factors.
First of all, a borrower's credit record is often concerned outside the loan grid. Banks generally investigate the consumption records, credit lines and social experiences of these borrowers in detail. Therefore, banks can estimate how much money these borrowers can borrow. In addition, banks can obtain the detailed information and loan plans of these borrowers to formulate corresponding loan contracts.
For companies, banks will also calculate their default probability. These companies often provide some bonds to the market through credit related notes. For investors, they can purchase the bonds issued by these companies to obtain certain interest income. The loans obtained by these companies may be transferred to other companies. They make it easier to repay the loan by splitting the loan. In addition, when they pay off their loans, the credit records of these companies will become better.For investors, they will receive subsidies. The subsidy rate depends on the probability of default.
Companies can obtain loans by issuing bonds. They promised investors that they would pay monthly interest for them as soon as possible. At that time, investors often refer to the default probability of these companies to choose whether to buy or how many bonds to buy. Investors often choose the company with the lowest probability of default to make a large amount of capital investment. It is worth mentioning that national debt has the lowest probability of default among all issued bonds.
It is very important for investors who want to obtain returns through default probability to learn how to avoid risks through economic knowledge and capital structure. What you need to know is that the precondition for choosing an investment method is that you need to know their default probability. For example, you can choose to buy government bonds or stocks of super large Internet technology companies to ensure your financial stability.
In conclusion, the calculation process of banks' default probability is very complicated. What you need to understand is not the calculation formula or a large number of data sources. You need to understand the principle of default probability. Through the comprehensive influence of multiple factors, the probability of default can reliably estimate a person or company's debt paying ability by numerical method. What you need to do is to choose the investment method through the default probability to obtain a profit.
