Question

Why does an unsecured loan have a higher interest rate than a secured loan?

A.
The bank bears all the risk of the loan.

B.
The bank charges more for poor credit scores.

C.
The bank bases higher interest rates on market conditions.

D.
The bank raises rates unfairly for unsecured loans.

Answer 1

Answer: A

Explanation: There is a higher risk for banks when they give an unsecured loan. Secured loans have a collateral to back the loan, whereas unsecured loans are not a secure (hence the name).

Hope this helps!