Definition of Credit risk:
Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations. Traditionally, it refers to the risk that a lender may not receive the owed principal and interest, which results in an interruption of cash flows and increased costs for collection. Excess cash flows may be written to provide additional cover for credit risk. When a lender faces heightened credit risk, it can be mitigated via a higher coupon rate, which provides for greater cash flows.
Probability of loss from a debtors default. In banking, credit risk is a major factor in determination of interest rate on a loan: longer the term of loan, usually higher the interest rate. Also called credit exposure.
Although it's impossible to know exactly who will default on obligations, properly assessing and managing credit risk can lessen the severity of a loss. Interest payments from the borrower or issuer of a debt obligation are a lender's or investor's reward for assuming credit risk.
How to use Credit risk in a sentence?
- Consumer credit risk can be measured by the five Cs: credit history, capacity to repay, capital, the loan's conditions, and associated collateral.
- Consumers posing higher credit risks usually end up paying higher interest rates on loans.
- The fast food employee really wanted the Lamborghini, but his income to debt ratio posed a serious credit risk to the dealership.
- You need to know how much of a credit risk someone is when you decide if you should allow them to borrow.
- I did not want to do it because it would be a really big credit risk and it could end up hurting me.
- Credit risk is the possibility of losing a lender takes on due to the possibility of a borrower not paying back a loan. .
Meaning of Credit risk & Credit risk Definition