Which type of loans require the borrower to put up collateral?

Which type of loans require the borrower to put up collateral?

• A. Secured loans
• B. Interest rates
• C. Revolving credit
• D. Unsecured loans

Answer: (A)

Secured loans require the borrower to put up collateral, which is an asset that lenders can claim if the borrower fails to repay the loan. This type of arrangement reduces the risk for the lender, as they have a backup assurance that they can recover some value in case of default. Common examples of secured loans include mortgages, where the property itself serves as collateral, and auto loans, where the vehicle is the collateral. In contrast, unsecured loans do not require collateral and are based on the borrower’s creditworthiness alone. This typically results in higher interest rates due to the increased risk taken on by the lender. Interest rates refer to the cost of borrowing, without any direct links to collateral requirements. Lastly, revolving credit allows borrowers to access funds up to a maximum limit without needing to secure them against collateral, where the flexibility of borrowing and repayment is different from that of secured loans.

Secured loans require the borrower to put up collateral, which is an asset that lenders can claim if the borrower fails to repay the loan. This type of arrangement reduces the risk for the lender, as they have a backup assurance that they can recover some value in case of default. Common examples of secured loans include mortgages, where the property itself serves as collateral, and auto loans, where the vehicle is the collateral.

In contrast, unsecured loans do not require collateral and are based on the borrower’s creditworthiness alone. This typically results in higher interest rates due to the increased risk taken on by the lender. Interest rates refer to the cost of borrowing, without any direct links to collateral requirements. Lastly, revolving credit allows borrowers to access funds up to a maximum limit without needing to secure them against collateral, where the flexibility of borrowing and repayment is different from that of secured loans.