Which type of loan contract carries the lowest risk?

A demand loan with monthly payments secured by assets carries the lowest risk primarily because it has collateral backing it. When a loan is secured by specific assets, the lender has a legal claim to these assets in the event of default. This reduces the lender’s potential losses, as they can seize the collateral to recover a portion of the outstanding debt. Additionally, the monthly payments help ensure consistent cash flow for the lender, further mitigating risk.

In contrast, other options present higher risk scenarios for lenders. A fixed-rate loan with no collateral poses a risk because it does not provide any security to the lender; if the borrower defaults, the lender has no direct claim to any assets. A short-term personal loan is often unsecured as well, meaning it lacks collateral, thereby increasing the risk significantly should the borrower default. Finally, a revolving line of credit typically allows borrowers to withdraw funds as needed, which can lead to higher risk because the outstanding balance can fluctuate, and without collateral, the lender lacks assurance of repayment. Therefore, the presence of secured assets and structured payments in a demand loan significantly reduces its risk profile compared to the other options.