10 ms·

The smaller loan is more risky. If it is "personal needs" like you describe, it isn't backed by any asset. In other common scenarios such as using second mortga

The smaller loan is more risky. If it is "personal needs" like you describe, it isn't backed by any asset. In other common scenarios such as using second mortgage or a HELOC to get to 20%, it is second to the primary loan in getting paid off in case of foreclosure. That is, if the home sells for 85% of value in foreclosure, the primary mortgage holder will likely be made whole on both the debt and costs of foreclosure, but the second mortgage might get 10% recovery. And in the case of a "personal needs" loan, they probably get nothing.

pc86 10y ago
In the event of wholesale bankruptcy, yes small unsecured loans are almost certainly getting $0. I think they mean in the event a borrower is overextended but still relatively solvent (e.g. they just continue spending too much). If I have a LendingClub loan with a $200/mo payment and an $850 balance and am having trouble making ends meet, it behooves me to pay that loan off by any means necessary, because it will free up $200/mo in cash flow relatively quickly. It's unlikely I am in the same position with my mortgage or car payment.