How does underwriting work and how does it fit into finance?

Question

What it says in the title!

In: 13

Answer 1

Underwriting is when someone sponsors or co-sponsors a loan that a bank gives a potential client with a bad or non-existent line of credit. It fits into finance because banks lend money with the expectation that a loan will at least be paid back for the amount owed, or with the hope of gaining some returns in the form of interest. Someone with good credit underwriting a loan, depending on the terms of the loan, often leverages their own assets and credit score on behalf of the loaner.