All categories

4 years ago

Why do banks and other financial institutions require collateral for loans?

2 answers:

8 0

The bank and financial institution require collateral for loans because if the borrower defaults loan payments then the lender can seize the collateral to realize its losses.

Further Explanation:

Collateral can be defined as the asset or property that can be accepted as loan security by the lender.

The bank and financial institution require collateral property while giving loans because in case borrower defaults loan payments then the financial institution or bank can seize the property to realize its losses. The loans that require collateral security are termed as a secured loan. They rate of interest is low in comparison to the unsecured loans. The various types of collateral accepted by the bank are:

• Personal real estate.

• Personal vehicles

• Cash or savings accounts

• Valuables such as fine art, collectibles or jewelry

• Home equity

• Paychecks

• Investment accounts

• Paper investments

The loan amount determines the value of the asset or property that is required as the collateral . The bank and financial institution require collateral to safeguard themselves against any default made by the borrower. Therefore, the bank and financial institution require collateral for loans because if the borrower defaults loan payments then the lender can seize the collateral to realize its losses.

Learn more:

1. Learn more about the lifetime cost of the loan along with interest

brainly.com/question/1757741

2. Learn more about the interest on credit card

brainly.com/question/5993991

3. Learn more about compound interest

brainly.com/question/1033449

Answer details:

Grade: High School

Subject: Business Studies

Chapter: Loan

Keywords: bank and the financial institution, collateral for loans , banking, financial services, lending the money, fund, business model, bankers.

lesantik [10]4 years ago

7 0

Collateral is required by banks and other financial institutions because if the loan-taker defaults on his payments. This is a safety measure that prevents people from stealing money via loans.

You might be interested in

Suppose you have $10,000 in your checking account. you withdraw $500 cash from your account and hide it under your pillow for fu

wel

A, the money supply (how much currency in a country's economy at a time) is going to decrease by $4500! A required reserve ratio is basically a sort of rule that the government sets that says how much of a person's deposits must be set towards reserves.

3 0

4 years ago

Read 2 more answers

Change champions are more likely to make mistakes:_________.

Mrac [35]

Answer:

c. due to messiness and uncertainty behind change.

Explanation:

Change champions are the individuals who are either selected or who opts themselves to bring about change in the organization. They are selected by the change management group of the organization.

Change champions are more likely to make mistakes due to the messiness and uncertainty behind the change. Which means that such people are though experts but still due to the complicated changes and the chances of mishappening behind the changes they may make mistakes.

Even though they may commit mistakes but the change champions are the one's who learn from their mistakes and try and improve the mistakes committed.

8 0

3 years ago

Taylor Company had a salaries payable balance of $18,000 on December 31, 2014. During 2015, it paid $50,000 in cash as salaries,

Flura [38]

Answer:

$18,000

Explanation:

Given data for Taylor Company;

Salaries payable at the beginning of 2015 (end of 2014) = $18,000

Salary expense during the year (2015) = $50,000

Salaries paid during the year = $50,000

Salary payable at end of year (2015) = ?

Let the salary payable at end of year= S

Using the formula

Salaries payable at the beginning of the year + Salary expense during the year - Salaries paid = Salary payable at end of year

$18,000 + $50,000 - $50,000 =S

S = $18,000

Salaries payable as at December 31, 2015 is $18,000.

8 0

3 years ago

Sunland Corporation had net sales of $2,425,800 and interest revenue of $38,200 during 2020. Expenses for 2020 were cost of good

ladessa [460]

Answer:

Prepare a single-step income statement for the year ended December 31, 2020

Explanation:

SUNLAND CORPORATION

Inconme statement

For the year endend December 2020

Revenue

Net Sales 2.425.800

Interes Revenue 38.200

Total Revenue 2.464.000

Expenses

Cost Of goods 1.458.200

Administrative expenses 212.600

Selling xpenses 282.000

Interes expense 46.400

Tax rate 139.440

Expenses 2.138.640

Net income 325.360

Shares issued 70210

Earning p/share 4,63

7 0

4 years ago

5. What is the real rate of interest for an account that offers a 12% nominal rate of return when the rate of inflation is 6% an

Gelneren [198K]

Answer:

Real interest rate= 0.06 = 6%

Explanation:

Giving the following information:

Nominal interest rate= 12%

Inflation rate= 6%

The inflation rate provides the opposite effect on the interest rate. It decreases the purchasing power of an individual. To calculate the real interest rate, we need to deduct the inflation rate.

Real interest rate= 0.12 - 0.06= 0.06

8 0

3 years ago