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Usually, lenders require collaterals valued at a much higher price than that of the actual loan since its value could diminish over time. An example may be a house that has been used as a collateral. Its value may be lower in time if it These kinds of loans usually have lower interest rates since it is backed by a collateral. The lender would feel more secure with the deal thus over a lower interest rate. With the presence of a collateral, lenders may still want to lend money to borrowers who may even not have a very good credit standing since they could rely on the security of the collateral.

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