Question

Why do informal sources give credit without collateral

Answer 1

Unsecured loans are loans that are approved without the need for collateral. Collateral is when you pledge an asset to secure a loan. With an unsecured loan, instead of pledging assets, borrowers qualify based on their credit history and income. Lenders do not have the right to take physical assets (such as a home or vehicle) if borrowers stop making payments on unsecured loans.

These loans are also known as “signature loans” because your signature on the loan agreement is all that you bring to the table. You promise to repay, but you don’t back up that promise by pledging collateral.

Answer 2

Collateral (e.g bank deposits , cattles l, land etc.) are given by the borrower as guarentee that loan will be repaid and if the loan is not repaid the lender has the right to sieze the property