Which of the following statements regarding loan collateral is true?
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 item of value pledged by a borrower to secure the principal portion of a loan. It serves as security for the lender in case the borrower is unable to repay the loan. Collateral can be in the form of assets like property, vehicles, securities, and other valuable possessions. The presence of collateral may result in lower finance charges as it reduces the risk for the lender. However, the amount and type of collateral required may vary based on factors like the loan amount, credit history of the borrower, and the lender's policies.

Which of the Following Statements Regarding Loan Collateral Is True