3 years ago

Why do lenders require collateral for a secured loan? (10 points)

Business

1 answer:

Vanyuwa [196]3 years ago

6 0

Answer:

A) It reduces risk to the lender

Explanation:

Collateral refers to a valuable asset that a borrower offers to the lender to secure a loan. Typically, the collateral will have a higher market value than the loan amount. Asset mostly used as collateral include homes, properties, and motor vehicles. The lender will keep custody of the title documents until the borrower repays full amount borrowed.

Offering collateral for a loan indicates the borrower's willingness to repay the loan. The lender is assured of recovering their money. If the borrower defaults, the lender will dispose of the collateral to recover their money. This reduces the lender's risk.

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