Risk-Based Pricing

Risk-Based Pricing is a method used by lenders and insurers to determine the rates or premiums they charge customers based on the perceived risk associated with them. Essentially, individuals with a higher likelihood of defaulting on loans or making claims will pay higher rates, while those considered lower risk will benefit from lower rates. This approach helps ensure that the pricing reflects the potential financial risk. By analyzing factors such as credit history, payment behavior, and personal information, companies can tailor pricing to match the risk level of each customer, promoting fairness and sustainability.