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
A loan is essentially a service that you’re paying someone to provide (i.e. you loan me $100, I return the money and pay you an extra $20 by a certain date). If you’ve previously failed to live up to your end of such a deal, then there’s going to be less people willing to make such loans in the future, and the ones who are can charge more money since they’re going to be more scarce
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