Question

Tom would like to take out a secured loan to help pay for a vacation this summer. He has offered his car as collateral. His car is worth $3,500. His bank can offer loans for 80% of collateral value. The vacation he has planned will cost $4,750. Approximately how much additional collateral will Tom need to offer in order to borrow enough to go on his vacation as planned?
a.
$1,000.00
b.
$1,362.50
c.
$2,437.50
d.
$2,800.00


Please select the best answer from the choices provided

A
B
C
D

Answer 1

C

Current max loan = 0.8 × $3,500 = $2,800. Shortfall = $4,750 − $2,800 = $1,950.
Needed collateral = $1,950 ÷ 0.8 = $2,437.50.