Multiple Choice
If you have accepted more loan money than you need for your college expenses, whom should you contact to adjust your loan amount?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Secured loans are less costly than unsecured loans because:
A
They have higher interest rates to compensate for risk.
B
They are backed by collateral, reducing the lender's risk.
C
They are only available to individuals with poor credit.
D
They require no documentation or credit checks.
Verified step by step guidance1
Understand the concept of secured loans: Secured loans are loans backed by collateral, which is an asset pledged by the borrower to the lender. This collateral reduces the lender's risk because, in case of default, the lender can seize the collateral to recover the loan amount.
Compare secured loans to unsecured loans: Unsecured loans do not require collateral, making them riskier for lenders. As a result, unsecured loans typically have higher interest rates to compensate for the increased risk.
Analyze the cost difference: Secured loans are less costly because the collateral reduces the lender's risk, allowing them to offer lower interest rates compared to unsecured loans.
Evaluate the incorrect options: Secured loans do not have higher interest rates (this applies to unsecured loans), are not exclusively available to individuals with poor credit, and do require documentation and credit checks to assess the borrower's ability to repay.
Conclude why secured loans are less costly: The presence of collateral is the key factor that reduces the lender's risk, making secured loans less expensive for borrowers.
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