Multiple Choice QuestionIf a small business owner takes out a loan to purchase a delivery van, where the delivery van is used as collateral for the loan, it is called a _____.Multiple choice question.secured loanrevolving credit agreementunsecured loanline of credit
Question
Multiple Choice QuestionIf a small business owner takes out a loan to purchase a delivery van, where the delivery van is used as collateral for the loan, it is called a _____.Multiple choice question.secured loanrevolving credit agreementunsecured loanline of credit
Solution
The correct answer is "secured loan".
Here is the step by step explanation:
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A loan is a sum of money that is expected to be paid back with interest.
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When a loan is taken out with a collateral (an asset that the borrower offers as a way for a lender to secure the loan), it is called a secured loan. If the borrower defaults on their payments, the lender can take the collateral to recover its losses.
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In this case, the small business owner uses the delivery van as collateral. If the owner fails to repay the loan, the lender can take possession of the van.
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Therefore, the loan taken out by the small business owner to purchase a delivery van, where the delivery van is used as collateral, is called a secured loan.
The other options - revolving credit agreement, unsecured loan, and line of credit - are different types of loans or credit and do not involve collateral.
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