Which of the following statements is true?

Question

Quizplus · Accepted Answer

Unsecured loans, as the name suggests, lack any collateral or security for the lender in case of default. This creates a problem of adverse selection where borrowers with bad credit scores or high risk of default are more likely to seek unsecured loans, leading to higher interest rates to compensate for the higher risk. Free-rider problem (A) is not applicable to unsecured loans as it deals with the issue of non-excludability of public goods. (C) is incorrect as unsecured loans are still prevalent in the market. (D) is incorrect as unsecured loans are not limited to individuals with high net worth.

Which of the Following Statements Is True