Why could a lender's expected return be lower when the risk premium is increased on a loan?

A lender's expected return may be lower when the risk premium is increased on a loan because a higher risk premium often reflects an increased likelihood of default. As the perceived risk of the borrower rises, lenders may demand higher interest rates to compensate for that risk, but this can also lead to reduced loan demand or increased loan defaults. Consequently, the lender might face a situation where the potential returns are offset by losses from defaults, ultimately lowering the expected return on the loan.