What does "materially less favorable terms" refer to in the context of risk tiers?

In the context of risk tiers, "materially less favorable terms" typically refers to conditions associated with higher risk loans, which often manifest as higher interest rates or less advantageous repayment terms. Specifically, when evaluating risk tiers, lenders assess borrowers based on their creditworthiness and other financial indicators. Borrowers in lower risk tiers, who often have higher credit scores, are likely to receive loans with favorable terms compared to those in higher risk tiers.

The classification system for determining loan eligibility is vital because it allows lenders to categorize applicants according to their perceived risk. These risk categories inform the terms of the loan that can be offered. For borrowers considered to be at a higher risk, lenders will implement "materially less favorable terms" which can include features such as higher interest rates specifically aimed at compensating for the increased risk associated with lending.

Thus, while specific tiers that do not require notices or broader loan limits for higher risk tiers do not directly reflect the relationship between risk and loan terms, the option regarding higher interest rates for lower credit scores accurately captures how risk tiers affect borrowers by indicating that the less favorable terms are often imposed due to a borrower’s risk level.