Which of the Following is Most Likely to Represent a Fixed Rate Secured Debt?
The most likely option is a Dealer - Financed Auto Loan, as it offers a fixed interest rate and is secured by the purchased vehicle.
by Sai V
Updated Oct 19, 2023
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Which of the Following is Most Likely to Represent a Fixed Rate Secured Debt?
A) A student loan
B) A credit card
C) A loan from a friend
D) A Dealer - Financed Auto Loan
The correct answer is option D: A Dealer - Financed Auto Loan. This type of loan is highly likely to represent a fixed rate, secured debt. The term "fixed rate" implies a constant and unchanging interest rate throughout the loan's duration, ensuring that the borrower's monthly payments remain consistent and predictable.
In the case of a dealer-financed auto loan, the purchased vehicle serves as collateral, providing security to the lender. If the borrower fails to make payments, the lender can repossess the car. This collateralization makes the loan secured, reducing the lender's risk and typically resulting in a fixed interest rate. Therefore, a dealer-financed auto loan aligns with both criteria of being fixed rate and secured, distinguishing it from the other options provided.
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