11-25 Adjusting interest rates,fees,and other terms upward for increasing amounts of default risk is a way to attempt to realize the expected return on the loan.

Question

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Adjustments to interest rates, fees, and other terms for borrowers with higher default risk is a common way for lenders to try and achieve the expected return on the loan. This is because borrowers with a higher likelihood of defaulting pose a greater risk to the lender, so they may adjust the terms to compensate for that risk.

11-25 Adjusting Interest Rates,fees,and Other Terms Upward for Increasing Amounts