Question

Which is the riskiest consumer loan, based on YIELD/RATE%? Why?

Answer 1

Answer.

There are four types of consumer loans as given below:

1. Mortgage loan

2. Student loan

3. Personal loan

4. Vehicle/Auto loan

A mortgage loan is security backed secured and is almost safe consumer loan.

A vehicle/auto loan is also secured loan backed by an asset.

Student loan is given upto certain limit by understanding the potential earning of student. Rate of interest is low compared to personal loan

A personal loan is given with higher limit. Rate of interest will be higher as the maximum risk factor is associated with this kind of consumer loan. It is usually an unsecured loan. Credit card loan also falls under this category where the interest rate is too high.

Rate of interest vary with customer's level of risk. As the secured loans are not risky enough so available at low rate of interest. In personal loan the rate of interest is highest and is the riskiest consumer loan.