It bears emphasis that when it comes to lending, the interest rate inherently has built into it the risk of default and the knowledge that a certain percentage of loans are going to default. When credit cards companies blindly ship credit cards, they know a certain percentage are going to default. When I invest in a junk bond mutual fund, I know a certain percentage of the bonds are going to default. Those expected default rates are reflected in the interest rates charged. The fact that a specifc borrower defaults is not evidence that the interest rate was "incorrectly" priced or that the lender was snookered.
David Shemano ^^^^^^ CB: So, the interest rate has something of an insurance policy for the creditor built into it, wherein all the debtors pay toward the insure for the creditor.
