Question

Why do lenders usually charge a higher interest rate for

unsecured loans than for secured loans?
A. Unsecured loans do not require property to be provided
as collateral.
B. Unsecured loans are used for large purchases such as
houses or cars.
C. Unsecured loans provide unlimited credit.
D. Unsecured loans do not have specific terms or payment
plans.

Answer 1

Answer: A

Step-by-step explanation:

A. Unsecured loans do not require property to be provided as collateral.

Lenders usually charge a higher interest rate for unsecured loans than for secured loans because unsecured loans do not involve the borrower providing collateral (such as a house or car) to secure the loan. The absence of collateral in unsecured loans makes them riskier for lenders, as they have no specific assets to claim in case of default. To compensate for the higher risk, lenders charge higher interest rates on unsecured loans. This helps offset potential losses if the borrower fails to repay the loan.