Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders.Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt.

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Lenders do charge higher interest rates to borrowers who are considered risky as they have a higher probability of defaulting on the loan and filing for bankruptcy. This is because if a borrower declares bankruptcy, the lender may lose all or a significant portion of the money that was loaned out, which is a costly risk for the lender.

Different Borrowers Have Different Risks of Bankruptcy, and Bankruptcy Is