Answer:
Personal loans can generate certain risks for the lenders as the borrower is not obliged to present any kind of collateral like real estate or property as security to the lender. Therefore, the lenders, normally banks or any kind of financial institutions, do not take this risk by giving huge money to the borrowers.
Step-by-step explanation:
Personal loans can generate certain risks for the lenders as the borrower is not obliged to present any kind of collateral like real estate or property as security to the lender - lender is normally a bank or any other financial institution.
For example, if a borrower needs a limited amount of money to do certain things, he may choose to get personal loan from the lender - normally banks or any other financial institution.
If the lender agrees to offer the personal loan to the borrower, then the borrower does not need to show any security or handover certain assets like home to the lender. But, lender would never want to take a huge risk by offering huge amount of money in terms of personal loan to the borrower as the lender does not have any access to the assets of borrower like property or home to recover the loss in case the borrower defaults. This is one of the biggest reasons why the personal loans are smaller in magnitude than mortgages and home equity loans. Normally, personal loan does not exceed $100000.
But, on the other hand mortgages loans are larger in magnitude as borrowers would have to offer a certain kind of asset like real estate or property as a collateral to the lender. But, mortgages and home equity loans normally make sure the borrower, lacking enough cash, gets enough money to be able to make mega purchases. Lenders take this risk as they know in case the borrower defaults, they (lenders) would have access to the collateral like home or property of the borrower. And lenders can use this collateral like home or property of the borrower to recover the loss in case the borrower is defaulted.
Keywords: mortgages, equity loans, personal loans
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Answer:
Personal loans can generate certain risks for the lenders as the borrower is not obliged to present any kind of collateral like real estate or property as security to the lender. Therefore, the lenders, normally banks or any kind of financial institutions, do not take this risk by giving huge money to the borrowers.
Step-by-step explanation:
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