Why are customers given credit limits?

Accounting Dec 17, 2020

Expert Solution

Customers are given credit limits because as with any loan, there needs to be a limit to the risks that the lender incurs. Not placing a credit limit can leave an institution that lends the money in danger of losing not only the future interest from the loan but the principal amount lent. This is why lenders use many factors to manage the risks they take in extending credit.

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