Based on their own individual underwriting criteria that has been developed over years of experience, each lender considers the borrower’s risk of defaulting on the loan. They review the applicant(s) credit history, amount requested, total annual income and the amount of debt responsible for paying each month.
The lower the risk, the lower the rate the lender will offer. Lenders also look to make a profit on the loans they make, so the interest rate includes both the cost of the risk and the cost of servicing the loan.
