Banks, right? A total nuisance in our, uh, behinds! They won't give a loan without collateral: a house, car, or something pricey. And don't get me started on income proof – insane! But remember, banks are businesses.
I want to add Another reason why banks need collateral for loans is to protect themselves from the risk of default. When a bank approves a loan, they are essentially giving someone money that they expect to be paid back with interest over a certain period of time. This means there is always a risk that the borrower will not be able to pay back the loan, either due to losing a job or experiencing financial difficulties for some other reason.
By requiring collateral, banks can mitigate some of this risk. If the borrower defaults on the loan, the bank can take the collateral and sell it to recover some or all of the money they lent. This helps protect banks from losses and ensures that they can continue to lend money to other borrowers in the future.
You are right, bank is a business that needs to manage risk and ensure profit. That's why they ask for collateral as a way to reduce their loan risk. However, the current system may seem flawed to some people, especially those who don't own traditional collateral such as a house or car.
They need profits to survive. Lending money means risks, and collateral helps them manage it. Still, the system's flawed. Time for banks to think creatively, offer loans for those lacking traditional collateral. No house or car doesn't mean no credit, folks!
For this point, at least the banks have also thought that they should also think creatively and offer more alternatives for people who do not have traditional collateral. I think, This will help promote financial inclusion and allow more individuals to access credit.