why are interest rates higher for people with low credit scores?

Question

I’m asking specifically about people in the U.S. looking to borrow from a lender.

In: 0

Answer 1

Higher risk.

Lenders charge interest as a hedge against inflation, but *also* as a cushion in case payments aren’t made. If you have bad credit, you’re more likely to miss payments, and as such need to pay a higher rate.

If you’re a safe bet and know you’ll make every payment, they’re okay with “small profit but guaranteed profit.”