If a lender believes that a particular borrower might default, the lender will demand:
A) a higher interest rate, to make the risk worth taking.
B) more collateral, to ensure adequate compensation if the default occurs.
C) a longer term on the loan, to give the borrower more of a chance to repay.
D) that another bank is also involved in securing the loan.

Question

Quizplus · Accepted Answer

If the lender believes that a borrower might default, they will demand a higher interest rate to compensate for the risk they are taking. This is because the lender wants to ensure that they earn enough return on their investment to cover the potential loss if the borrower does indeed default on their loan.

If a Lender Believes That a Particular Borrower Might Default