In the category of debenture loans we find subordinated loans, which are generally used by small savers, who often find them without even knowing it within the life policies stipulated with banks. There are two characteristics that make them somewhat different from bond loans: the level of risk and the return. The investment risk is certainly greater, so if behind these subordinated loans there is an investment that turned out to be bankrupt, the loans will be paid only after the satisfaction of all the other creditors. On the other hand, they are more profitable with respect to bonds.
How do they work
It is the banks that issue subordinated loans, but sometimes the foreign ones do so through life insurance policies (designed as “masked” insurance investments), which are certainly more risky. It may be interesting to evaluate the convenience of Cream Bank Loans. In order to avoid unpleasant surprises, it is always better to check that certain clauses are not hidden within your investments. If things go wrong, the saver is satisfied last, since precedence is given to all other creditors. If there is nothing left to attack the capital invested, it would be completely lost. Subordinated loans are mainly used by the major banking institutions to meet companies in the event of bad credit or to obtain liquid money more easily.
In order to be “regular” this type of loan must explicitly report the subordinate nature of the contract. It is also important that the terms of extension, the repayment of the principal, the interest rate and the duration are clear. See also how the Prestiamoci platform works.
We could well define them as “series b bonds” which justify the high return against a considerable risk.
Classification and difference from irredeemable loans
Subordinated loans are classified according to their level of risk and return: Tier 1, Tier 2, Tier 3. Savers must put the advantages (given by the interest rate) and the risks of these loans on the “balance”. Since subordinated loans do not form part of the “irredeemable loans” as they participate in the losses of those who issued them only in the event of liquidation, their financial nature is therefore not unique.
The main differences are:
- irredeemable loans cover the issuer’s losses even outside bankruptcy proceedings
- unpaid loans unlike subordinated workers, remuneration is also provided in deferred form if the profits recorded by the issuer are not sufficient to honor when agreed.
Anyone over the age of majority and fully aware of the risks that this investment could entail can invest through the subordinated loan facility. There is however the possibility of obtaining substantial profits.