Question

Why might banks charge higher interest rates to someone who they thought might not pay their loans?

Answer 1

So they can cover the all the other subprime loans they lost on. When loans are sold to investors, they are categorized into prime and subprime loans. A subprime loan is given to one with bad credit and prime is opposite. The likelihood of payment on a subprime loan is far less than a prime. Banks need to jack up interest rates to cover what they would lose if they aren't paid.

Answer 2

i would say they would charge a higher interest rate to people who they thought might not pay their loans because so they could encourage the person to pay off their loans . in a more simple way to put it . sorry its not a fancy educated answer but knowing me all i need is a simple answer to understand something fully . i am sure there are other people who learn like this so maybe this will help . especially to people whom might not have a lot of time on their hands.