The correct statement is that the charging of higher interest to a person missing a payment is known as risk-based lending and are not secured form of loans. So, the correct option is C.
The bank or the financial institution tries to compensate the risk of bad debts or defaults by charging a higher interest rate on such account.
Loan Interests
- The charge of higher interest rate is done by the bank to save itself from the risk of chances of defaults in repayment by the borrower due to his past history with the bank.
- The bank or the financial institution charges a higher rate of interest rather than normal rate of interest to compensate default probability of borrower and poor credibility records.
Hence, the correct option is C that the charge of higher interest rate to a person is also referred to as risk based lending and makes the loan secured.
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