What is commonly required by lenders as collateral?

Study for the GradReady Real-World Finance Exam. Utilize flashcards, multiple-choice questions, and detailed explanations to grasp essential financial concepts. Prepare for success!

Lenders typically require collateral to secure a loan, which helps them reduce their risk in case the borrower defaults on the loan. Collateral is a valuable asset that can be seized or sold by the lender to recover the amount owed. Common examples of collateral include real estate, vehicles, and other substantial assets. By having this assurance, lenders feel more secure in lending money, as they have a tangible asset to fall back on should the borrower fail to meet their obligations.

The other choices do not serve as collateral. Weekly income reports and a detailed spending plan provide insight into a borrower's financial situation but do not offer the lender any physical assets that can be claimed in the event of a default. Similarly, a history of previous bank transactions may demonstrate past financial behavior but lacks intrinsic value as a guarantee for loan repayment. Therefore, valuable assets stand out as the common requirement when it comes to securing loans.

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