Which type of credit is most likely to be unsecured (not backed by specific collateral)?

• A. Revolving line of credit based primarily on the borrower’s general creditworthiness
• B. Auto loan secured by the vehicle
• C. Mortgage loan secured by real estate
• D. Equipment note payable secured by the purchased equipment

Answer: (A)

Verified step by step guidance

1. Understand the concept of secured vs. unsecured credit: Secured credit is backed by specific collateral (an asset), which the lender can claim if the borrower defaults. Unsecured credit is not backed by any specific asset but relies on the borrower's creditworthiness.
2. Identify the types of loans listed and determine if they are typically secured or unsecured: Auto loans, mortgage loans, and equipment notes are usually secured by the asset being financed (vehicle, real estate, equipment respectively).
3. Recognize that a revolving line of credit based primarily on the borrower’s general creditworthiness does not have specific collateral backing it, making it an unsecured form of credit.
4. Compare the options and note that the revolving line of credit is the only one that is generally unsecured, while the others are secured by specific assets.
5. Conclude that the type of credit most likely to be unsecured is the revolving line of credit based on the borrower’s general creditworthiness.