2. Collateral or Guarantees
A homeowner will show you his bank account and also prove that he owns his home free and clear so that you conclude that he is a decent risk whose signature on a note is as good as gold, but taking a mortgage on his home is much wiser for you. Or if he has securities it is better to have him assign the securities to you than just to take his promise to pay.
If a dealer sells you a customer’s conditional sales contract on an automobile he sold on which the customer is obligated to pay in time payments over a given number of months or years, it is well, if possible, to have the dealer guarantee the contract in case the customer defaults. Two people are obligated to pay, and certainly, two are better than one.