How does getting qualified at a teaser rate create risk for the borrower?

Expert Solution

Teaser rate is a rate which is generally charged on a initial basis for any credit product so if the teaser rate is lower for the borrower and he is getting qualified for the credit, then he will get used to have the credit at a very lower rate but once the rate of interest will be starting to increase, then it will mean that the borrower will be facing difficulty in form of repayment of the interest as he will be having a difficult time to manage with his expenditure and rising rate of interest.

Hence, it can be said that getting qualified at a teaser rate will be creating credit risk for the borrower as he will have the risk of defaulting upon his loan as the rate of interest are starting to go up and teaser it is just a method in order to attract borrower and it is not a permanent rate.

jeff jeffy answered 2 years ago

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