I’m asking specifically about people in the U.S. looking to borrow from a lender.
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When you have a low credit score, it will be assumed you have an elevated credit risk. There’s money to be made from you, and while you’re paying down your loan you’re also paying for the defaulted loans of other borrowers. The lender is taking a chance and they’re going to charge you extra for doing so.
On the flip side of the coin, every lender wants to lend money to someone who always pays their debts off on time, every time. Lender’s are quite willing to compete with other lenders to get the business of someone who is going to make them so much easy money. One of the simplest ways to compete for the business of a ‘qualified’ borrower is to offer them a really attractive interest rate.
It’s not as underhanded as some cynics would want you to believe. The greater the risk, the greater the cost. The lower the risk, the more lenders are competing for your business, the lower the rates they’ll offer.
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