Final answer:
A lender would prefer to lend under conditions where the risk is manageable and the returns are favourable. Therefore, being the lender is more preferable if the borrower has a record of high profits, indicating reliability, or if market interest rates have fallen, increasing the relative value of the loan.
Step-by-step explanation:
When considering the role of a lender, there are a number of conditions under which they might prefer to lend money. These include assessing the risk associated with lending to a particular borrower, changes in the interest rates, and the borrower's ability to repay the loan. Specifically:
- Less Attractive Loan: A borrower with a history of late payments on loans appears to have a higher risk of default or late repayments in the future, making you less inclined to offer a high price for such a loan. In this scenario, you would want to pay less for the loan due to increased risk.
- Rising Interest Rates: If the general interest rates have risen since the loan was made, the value of the loan at its original lower interest rate becomes less attractive, leading a lender to offer less for the loan.
- Profitable Borrower: When the borrower is a firm with a strong record of high profits, it suggests a higher likelihood of repaying the loan. In such a case, a lender might be willing to pay more for the loan, considering it a safer investment.
- Falling Interest Rates: Conversely, if the overall interest rates in the economy have decreased, a loan with a relatively higher fixed-rate becomes more valuable. You, as a lender, would perceive the loan as more attractive and may be willing to pay more for it.
Additionally, lenders might seek reassurance through the collection of financial information, credit checks, requiring cosigners, or asking for collateral to mitigate the risks associated with lending.