Why does bank demand collateral while issuing a loan?
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A secured loan is a loan that has collateral attached to it. This type ofloan generally has a lower interest rate because the bank is taking a lower risk because it can collect the collateral if you default on payments. A securedloan is a good way to build credit. The debt is thus secured against thecollateral.
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Collateral is demanded by the banks before granting a loan as it is an asset that is owned by the borrower and it's used as a guarantee to the banks until the loan is repaid.
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