Which of the following is true of loan collateral?
A)Loans secured by collateral always have higher finance charges than unsecured loans.
B)Collateral is an item of value used to secure the principal portion of a loan.
C)Collateral is always required by banks to lend to customers with good credit ratings.
D)Collateral is an item of value used to secure the interest portion of a loan.
E)Loans are secured by collateral that is readily marketable at a price high enough to cover the interest portion of the loan.

Question

Quizplus · Accepted Answer

Collateral is an asset or property that is pledged as security for a loan. It is meant to provide lenders with some sort of assurance that the borrower will repay the loan. The collateral, therefore, serves as a backup or security that the lender can seize if the borrower fails to repay the loan. It is not always required by banks to lend to customers with good credit ratings, and the type of collateral needed will depend on the lender's requirements. Finance charges for loans with collateral may be lower than those for unsecured loans because of the added security. The collateral can be any asset or property that has a value that is sufficient to cover the principal portion of the loan, and may not necessarily have to be readily marketable.

Which of the Following Is True of Loan Collateral