CSLB Contractor's Law & Business Practice Exam

Which of the following is considered secure credit?

1. Open account

2. Cash on delivery

3. Lease

4. Secured loan

The correct answer is: Secured loan

A secured loan is considered secure credit because it is backed by collateral, which reduces the lender's risk. If the borrower fails to make the required payments, the lender has the right to take possession of the collateral to recover their losses. This security interest provides lenders with a mechanism to mitigate the risk of default, making secured loans a safer form of credit compared to unsecured options. In contrast, an open account does not involve collateral, leaving the lender more vulnerable should the borrower default. Cash on delivery signifies immediate payment and does not involve credit, thus lacking the characteristics of secure credit. A lease may involve financial commitments, but it does not inherently provide the same kind of security for the lender as a secured loan does.