What is the relationship between high risk loans and interest rates?

High-risk loans typically have a high interest rate due to the increased likelihood that the borrower will default on the loan. Lenders assess the risk associated with lending money, and when a borrower's creditworthiness is perceived as poor or when the loan itself is considered high risk (such as those given to subprime borrowers or for ventures with uncertain outcomes), the lenders charge higher interest rates to compensate for the additional risk they are taking on.

The rationale here is that the potential for default means that lenders must price the loan accordingly to cover their potential losses. By offering loans at higher interest rates, lenders seek to ensure that they can still achieve a reasonable return on their investment, even if some of the loans default. This practice is rooted in the basic principle of risk and return in finance—the greater the risk associated with an investment or loan, the higher the expected return should be to justify taking on that risk.

In contrast, the other options suggest relationships that do not align with market practices or common financial theories regarding risk and interest rates. For example, high-risk loans cannot typically have low interest rates because that would not adequately compensate lenders for the increased risk of default. Similarly, while some high-risk loans may be fixed rate, this is not a defining characteristic;