How Does a High Risk Loan Work?
The Bank Assesses The Loan Risk When a borrower applies for a loan, the bank will ask certain questions designed to assess the applicant’s ability to repay the loan. These questions might include inquiries about monthly or annual income, monthly expenses and how long the borrower has been consecutively employed. In addition, the bank will likely obtain a credit report from a credit bureau to determine how well the applicant has repayed other loans in the past. The Bank Assigns a Risk Factor Once all of the information is available, the bank assigns a level of risk to the borrower. Applicants who have a high credit score (indicating they have repaid other debts on time in the past) and who seem able to make timely payments are determined to be low risk. Applicants who have low credit scores, spotty or poor performance on past loans, no borrowing experience or who appear to jump from job to job may be declared a high risk. The bank uses the risk assessment to determine if it is willing t
