Credit and Loans — Quiz

Question 2 • Personal Finance

Which describes the difference between secured and unsecured credit?

Answer

Unsecured credit is backed by an asset equal to the value of a loan, while secured credit is not guaranteed by a material object.

Secured credit is risky because banks cannot seize assets, while unsecured credit is less risky because it is backed by material objects.

Unsecured credit enables lenders to seize an asset if a loan is not paid, while secured credit prohibits lenders from taking material objects.

Secured credit is backed by an asset equal to the value of a loan, while unsecured credit is not guaranteed by a material object.

Explanation

Secured credit is backed by collateral, an asset the lender may claim if the borrower does not repay the loan. Unsecured credit has no such asset backing it. Therefore, choice D correctly describes the difference; choice A reverses the definitions.

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