are contractually obligated to be paid
advantages and disadvantages of collecting interesta strategy for many investors is to collect interest often a fixed amount or at least consistent interest often provides positive cash flow that is a reliable source of income depending on the creditworthiness of the person borrowing the money instead of having capital sitting around and not being used lending money to others is a more efficient way of deploying capital especially in the short term when the lender may need that money for a specific reason in the longer term interest is also touted as one of the simplest forms of passive income loans may require little to no administration or maintenance after the agreement is signed lenders may simply collect interest and principal payments there are some downsides to collecting interest first interest revenue is taxable even a small amount may push a taxpayer into a higher tax bracket next because you are collecting interest this means you are allowing someone else to use your capital though you may be satisfied collecting interest there will often be greater earning potential had you utilized the capital yourself also collecting interest may have philosophical opponents consider student loan debt assessments while some say interest rates near 10 are reasonable for the amount of risk these lenders are incurring others claim these rates are predatory to young adults and should not be assessed may provide source of cash flow if interest payments are collected monthly frequentlymay be a passive source of incomemay provide a consistent stream of income if the borrower is reliable in their payments