Which term describes a security pledged for the payment of a loan, such as stocks or bonds?

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Prepare yourself for the GFL Financial Literacy Test. Study with flashcards and multiple choice questions. Each question comes with helpful hints and thorough explanations to aid retention. Get ready for your exam and achieve success!

Multiple Choice

Which term describes a security pledged for the payment of a loan, such as stocks or bonds?

Explanation:
Collateral is an asset pledged to secure a loan, giving the lender a claim on that asset if you fail to repay. When stocks or bonds are used as collateral, the lender can seize or sell them to recover the loan amount if you default. This arrangement reduces the lender’s risk and can influence loan terms. The other options refer to a person who promises to pay (co-signer), fees paid at closing (closing costs), or a banking history database (Chex-Systems), none of which describe a pledged asset. So the term described is collateral.

Collateral is an asset pledged to secure a loan, giving the lender a claim on that asset if you fail to repay. When stocks or bonds are used as collateral, the lender can seize or sell them to recover the loan amount if you default. This arrangement reduces the lender’s risk and can influence loan terms. The other options refer to a person who promises to pay (co-signer), fees paid at closing (closing costs), or a banking history database (Chex-Systems), none of which describe a pledged asset. So the term described is collateral.

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