The purpose of collateral in a secured loan agreement is to:
A)reduce the lender's risk.
B)reduce the expense of administering the loan.
C)make borrowers indifferent to the default risk of the loan.
D)increase the rate borrowers are willing to pay for funds.

Question

Quizplus · Accepted Answer

The purpose of collateral in a secured loan agreement is to reduce the lender's risk by providing an asset that the lender can seize and sell in the event of a borrower default. This increases the likelihood that the lender will be repaid, making it less risky for them to provide the loan, which is why they may offer lower interest rates for secured loans.

The Purpose of Collateral in a Secured Loan Agreement Is