The transfer of credits consists of the transfer of accounts pending recovery. That is, the entity that granted financing waives its right to collect in favor of a third party.
The new creditor , in exchange for the powers received, pays a consideration to the original lender . This benefits then with an immediate liquidity income .
Suppose we ask for a loan from a bank A. Bank A can transfer its credit to another entity B. Therefore, the entity to which we pay the end is B.
Participants of a loan assignment
The participants involved in a credit assignment are the following:
- Assignor:Original loan creditor.
- Assignee:New creditor who can recover the financing.
- Assigned:Credit debtor .
Main characteristics of the loan assignment
The main characteristics of the transfer of credits are the following:
- The debtor’s consent is not necessary to transfer the loan.
- It is useful when a company requires cashin the short term and cannot wait to recover the financing granted.
- Some obligations cannot be assigned such as food rights. These should be paid only from parents to their minor children.
- The price paid by the assignee depends on the present valueof the financing. This is calculated using an interest rate that reflects the risk of the transaction.
- If the ceded subject is delinquentin other institutions, for example, the probability of default is greater. Thus, a discount with a higher interest rate will be applied and the present value of the loan will be lower. It also happens when the debt is very long term.
- The transfer is usually formalized before a notary. In this way, the respective loan assignment contract is registered. There are detailed responsibilities assumed by the participants.
Types of loan assignment
The types of loan assignment are two:
- Without recourse:If the debtor declares insolvency, the transferor will be exempt from any responsibility. That is, the new creditor cannot claim the original lender for the borrower’s default .
- With recourse:If the debtor does not return the loan within the agreed terms, the transferor must respond to the assignee. In other words, there is a joint responsibility.
Example of assignment of credits
To understand how a loan assignment works, let’s look at the following example. Assume that a company has sold a machinery for US $ 20,000, due in 90 days (a supplier credit has been applied ).
Almost immediately after completing the transaction, as the company needs cash, it decides to transfer its collection rights. Thus, it agrees with the bank the recognition of an equivalent annual rate of 7.5%.
To calculate the payment to the assignor, we first find the quarterly interest rate (i):
i = (1 + 0.075) ^ (3/12) -1 = 0.0182
Then, the payment required by the original creditor will be:
20,000 / (1 + 0.0182) = US $ 19,641,646
It should be mentioned that a bank commission could also be applied . Assuming that this is only 1%, the net income the grantor will receive will be:
19,641,646 * 0.99 = US $ 19,445.23