Answered: Why do the creditors generally charge…

Business

Economics

Why do the creditors generally charge higher interest rates on new borrowing?

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter4: Going Into Debt

Section: Chapter Questions

Problem 22AA

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Question

Why do the creditors generally charge higher interest rates on new borrowing?

Expert Solution

Step 1

The interest rate is the amount that the creditor charges with the principal from the borrower to his money or asset.

The interest rate is not the same for everyone or every borrowing. The interest rate depends on the number of factors such as the risk involved with borrowing, profit motive and the use of borrowing.

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