A person takes out a car loan at a bank,but actually uses the money to play the lottery.This situation is an example of which problem banks face in lending?

Question

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This situation is an example of moral hazard, which is the risk that a borrower may engage in activities that are undesirable or risky, knowing that they will not be responsible for the consequences because they will not have to repay the loan. In this case, the borrower is using the loan for purposes other than the intended purpose, which is to purchase a car, and is engaging in a risky activity (playing the lottery) with the borrowed funds. This behavior increases the risk for the lender and is an example of moral hazard.

A Person Takes Out a Car Loan at a Bank,but