One reason lenders may require a large net worth before making a loan is because:

Question

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Requiring a large net worth from borrowers is one way to address the problem of moral hazard, which is the risk that the borrower will take excessive risks knowing that they will not bear the full consequences of those risks. By requiring a large net worth, lenders can be more confident that the borrower has something to lose if the loan is not repaid or if the borrower engages in risky behavior.

One Reason Lenders May Require a Large Net Worth Before