ElI5: What is the financial logic behind charging higher interest on loans for people with low credit scores? Doesn’t increasing the price like that make low credit individuals even less likely to repay the loan?

Question

ElI5: What is the financial logic behind charging higher interest on loans for people with low credit scores? Doesn’t increasing the price like that make low credit individuals even less likely to repay the loan?

In: Economics

Answer 1

The other thing to remember is that most loans have collateral…a house, a car, etc. So if someone defaults on the loan, the bank can take possession of the collateral.