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Consumer Borrowing and Loans

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Questions and Answers

What is the main purpose of consumer loans?

To permit buying expensive items (correct)

To provide financial flexibility only

To cover small expenses

To repay previous debts

What is a disadvantage of consumer loans?

You can repay your debts quickly

You can use the item while paying for it

You must provide collateral or security for the loan (correct)

You can spread payments over a long period of time

What is a personal loan usually obtained for?

To finance a small purchase

To finance a large purchase (correct)

To repay previous debts

To cover daily expenses

What is included in a loan contract?

Amount of the loan and interest rate Signup and view all the answers

What is a benefit of consumer loans?

You can spread payments over a long period of time Signup and view all the answers

What happens when the maturity of a loan is longer?

Lower payments are made, but more interest is paid over the life of the loan Signup and view all the answers

What is the purpose of collateral in a secured loan?

To ensure the lender can repossess the asset if the borrower defaults Signup and view all the answers

What aspect of a borrower does the 'Character' component of the 5 Cs of Consumer Borrowing refer to?

The borrower's integrity and previous obligations Signup and view all the answers

What type of loan is not backed by collateral?

Unsecured loan Signup and view all the answers

What is the purpose of cosigning a loan?

To strengthen the loan application if the borrower's credit history is weak Signup and view all the answers