Which statement about loan security is TRUE?

Which statement about loan security is TRUE?

• A. It protects the borrower's assets solely
• B. It guarantees loan approval
• C. It safeguards the lender's claim against risks
• D. It eliminates the need for due diligence

Answer: (C)

The statement that loan security safeguards the lender's claim against risks is accurate. When a borrower offers collateral – a valuable asset – it provides the lender with a level of protection in case the borrower defaults on the loan. This security allows the lender to have a claim on the collateralized asset, ensuring that they can pursue it to recover the loan amount. The presence of loan security reduces the lender's risk and can also impact the interest rate offered, as secured loans typically come with lower rates compared to unsecured loans. On the other hand, the other statements do not hold true in the context of loan security. Loan security does not only protect the borrower's assets; it primarily serves to secure the lender's interest. There is no guarantee that providing security will ensure loan approval, as lenders consider various factors, including the borrower's creditworthiness and financial situation. Additionally, while having collateral can mitigate risk, it does not remove the necessity for thorough due diligence, since lenders need to assess the borrower's overall ability to repay the loan.

The statement that loan security safeguards the lender's claim against risks is accurate. When a borrower offers collateral – a valuable asset – it provides the lender with a level of protection in case the borrower defaults on the loan. This security allows the lender to have a claim on the collateralized asset, ensuring that they can pursue it to recover the loan amount. The presence of loan security reduces the lender's risk and can also impact the interest rate offered, as secured loans typically come with lower rates compared to unsecured loans.

On the other hand, the other statements do not hold true in the context of loan security. Loan security does not only protect the borrower's assets; it primarily serves to secure the lender's interest. There is no guarantee that providing security will ensure loan approval, as lenders consider various factors, including the borrower's creditworthiness and financial situation. Additionally, while having collateral can mitigate risk, it does not remove the necessity for thorough due diligence, since lenders need to assess the borrower's overall ability to repay the loan.