Question

As Raina makes sure she has enough money for her auto loan payment, she reminds herself that her car is considered collateral. What does this mean?

1) Raina cannot borrow any more money until she pays for the car.
2) If Raina cannot pay the loan, the car will be taken back from her.
3) The car is tied to the value of the mortgage on Raina's home.
4) Once Raina pays back the loan, the lender will own the car.

Answer 1

When a car is considered collateral for a loan, the lender has the right to take it back and sell it if the borrower cannot repay the loan.

Step-by-step explanation:

When Raina's car is considered collateral for her auto loan, it means that if she cannot pay back the loan, the lender has the right to take back her car and sell it to recover the amount owed. Collateral is something valuable, often property or equipment, that a lender can seize and sell if the borrower defaults on the loan.

Therefore, option 2) If Raina cannot pay the loan, the car will be taken back from her is the correct answer.