Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher creditworthiness generally leads to lower interest rates.
B
Higher creditworthiness results in higher interest rates.
C
Creditworthiness does not affect interest rates.
D
Interest rates are only influenced by the overall economy.
Understanding the Answer
Let's break down why this is correct
Answer
Creditworthiness tells lenders how likely a borrower is to repay a loan on time. When a borrower has a strong credit history, the lender sees less risk and is willing to offer a lower interest rate. If the borrower’s credit score is low or they have a history of missed payments, the lender sees higher risk and compensates by charging a higher rate. For example, two people with the same income but one with a 750 credit score and another with a 550 score will receive different rates, the lower‑score borrower paying more. Thus, a borrower’s creditworthiness directly shapes the cost of borrowing.
Detailed Explanation
A person who can reliably pay back a loan is seen as less risky. Other options are incorrect because Some think a good credit record means the bank wants to earn more, so they raise the rate; Credit score does affect costs.
Key Concepts
Risk and Return in Loanable Funds
Topic
Loanable Funds Market Analysis
Difficulty
easy level question
Cognitive Level
understand
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