Which of the following determines the interest rate you will be charged when you want to borrow money?

• A. The amount of money in your savings account
• B. The type of currency you use for the loan
• C. Your creditworthiness and risk profile
• D. The number of years you have been employed

Answer: (C)

Verified step by step guidance

1. Understand that the interest rate charged on a loan primarily reflects the lender's assessment of the risk involved in lending money to you.
2. Recognize that your creditworthiness and risk profile summarize your financial reliability, including your credit history, income stability, and debt levels.
3. Note that factors like the amount of money in your savings account or the type of currency used are generally less important in determining the interest rate compared to your credit risk.
4. Acknowledge that the number of years you have been employed may indirectly affect your creditworthiness but is not a direct determinant of the interest rate.
5. Conclude that lenders use your creditworthiness and risk profile to set the interest rate because it helps them estimate the likelihood of repayment and potential default.