Question

Should lenders always consider the credit risk of a borrower and collateral value?

Should lenders always consider the credit risk of a borrower and collateral value?

Homework Answers

Answer #1

Yes, credit risk of a borrower and the collateral value are the two main deciding factors of whether to lend money to a borrower and if yes, then how much.

Credit risk of a borrower and collateral value have a direct relationship with each other. For example, if credit risk of a borrower is high, then the collateral value required also increases and opposite in case of low credit risk of a borrower. Before lending money, a lender should always consider these two important factors.

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