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Credit Constraints for the Wealth-Limited Due to Lack of Collateral or Equity
Difficulty of Securing Unsecured Consumption Loans for the Unemployed
Securing a loan to cover consumption needs, such as living expenses during a period of unemployment, is significantly more difficult than obtaining an asset-backed loan. This challenge stems from the fact that an unemployed borrower is unlikely to possess any assets that can be pledged as collateral, making the loan a higher risk for the lender.
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Social Science
Empirical Science
Science
CORE Econ
Economics
Economy
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
Related
Collateralized Home and Vehicle Loans as an Exception for Wealth-Limited Borrowers
Impact of Credit Constraints on Productive Investment Opportunities for the Less Wealthy
An entrepreneur with a well-researched, high-potential business plan but no significant personal assets (like property or savings) is denied a bank loan. From the perspective of the lender, what is the most accurate analysis of this credit decision?
Loan Application Outcomes for Two Entrepreneurs
Evaluating a Policy on Unsecured Lending
A lender charges a higher interest rate to a borrower with no personal assets to offer as security compared to a borrower with substantial assets, even if both have identical business plans. This practice is primarily a method for the lender to compensate for a greater perceived risk of non-repayment.
Match each concept from a lender's perspective with its correct description in the context of a loan application from an individual with few personal assets.
Lender's Rationale for Loan Hesitancy
Differentiating Loan Decisions
A bank is considering two loan applications for identical amounts to fund identical small business ventures. Applicant A has significant personal property, while Applicant B has no property or savings. The bank decides to approve both loans but offers a much higher interest rate to Applicant B. What is the most accurate economic justification for the bank's decision to charge Applicant B a higher interest rate?
Evaluating Policies to Support New Entrepreneurs
Evaluating Competing Loan Applications
Difficulty of Securing Unsecured Consumption Loans for the Unemployed