A credit investor is a person or a business that seeks to grant loans to the public and private sector for profit. In many instances, a credit investor is willing to provide capital in low- to medium-risk loans, but he also does so by defining terms that would be favorable to him if the venture failed. There is a standard formula that a credit investor uses to determine the creditworthiness of consumers and businesses, and different types of investors service the various industries. Banks and financial institutions are credit investors by definition, and the term also applies to credit card companies, private investors, and other alternative sources of lending.
The primary goal of any credit investor is to make a profit through lending. By granting a means of financing to an individual or a business, a credit investor assumes the risk that the debt will be repaid at regular intervals that are determined before the loan is granted. Since most of the inherent risk is placed on the credit investor, many types of loans are made with some sort of collateral involved. If the borrower were to fail to repay the loan as agreed, the investor would have legal recourse to take possession of the collateral.
Most credit investors have a predefined formula for determining when to grant a line of credit. Once the applicant's credit history is reviewed and deemed satisfactory, the investor would study the loan request itself to determine the chances of being repaid in full. In a separate process, the collateral would be evaluated to determine what the actual worth of the item is, and that would factor into the equation as well. After each of the steps are completed, if the lender felt that the loan was a good investment, he would determine an interest rate that would apply to the repayment schedule.
There are many different types of credit investors as well. Some of them deal solely with secured loans that have very little risk involved, while others intentionally seek out consumers who have shown a pattern of struggling to repay loans. For those that deal with high-risk clientele, the credit investor often profits heavily from fees and other penalties at the start of the loan. Each type of lender would generate initial terms that would ensure that he could ultimately benefit from the transaction, even when the consumer or business cannot complete the repayment schedule as agreed.
