by elycefeliz

Question by J1: Explain why one would expect the interest rates on collateralized loan & unsecured loan to differ?
What would that difference be?
this question is about short-term financing.

Best answer:

Answer by financegal27
A Collateralized Loan is backed with securitization payments in the form of different tranches. Financial institutions back this security with receivables from loans. So it is less risky than an unsecure loan, therefore more risk means investors need a greater reward. An unsecured loan would have a higher interest rate than a collateralized loan.

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