Questions and Answers
In determining whether to issue a loan, banks are not allowed to ask about an applicant's:
A credit score between 500 and 600 means a consumer would most likely:
Both mortgages and auto loans are riskier for borrowers.
False
A credit score is based in part on:
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What best determines whether a borrower's investment on an adjustable rate loan goes up or down?
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Which best describes a way people can use personal loans?
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For which buyer would a lender most likely approve a $200,000 mortgage?
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Simple interest is paid only on the _________ _________.
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The simple interest on a loan of $200 at 10 percent interest per year is:
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Which describes the difference between simple and compound interest?
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An example of secured credit is a:
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What is a benefit of obtaining a personal loan?
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What is the compound interest on a three-year, $100.00 loan at a 10 percent annual interest rate?
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The type of credit people are most likely to use for small purchases during their lifetime is:
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Which describes the difference between secured and unsecured credit?
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Study Notes
Loan Application and Regulations
- Banks cannot inquire about an applicant's country of origin when issuing loans.
Credit Scores
- A credit score between 500 and 600 indicates difficulties in securing a loan.
Mortgages and Auto Loans
- Both mortgages and auto loans are not inherently riskier for borrowers but typically require down payments and minimum payments.
Credit Score Influencers
- Key factors in a credit score include payment history and total debt.
Adjustable Rate Loans
- Market conditions primarily determine fluctuations in a borrower's investment on adjustable rate loans.
Personal Loan Uses
- Personal loans are often utilized for expenses related to education, such as paying for college.
Mortgage Approval
- The optimal candidate for a $200,000 mortgage would have a credit score of 760, a small amount of debt, and a history of steady employment.
Simple Interest
- Simple interest is calculated only on the principal borrowed amount.
Simple Interest Calculation
- For a $200 loan at a 10% annual interest rate, simple interest accrues to $20 per year until the loan is paid off.
Simple vs. Compound Interest
- Simple interest is calculated solely on the principal amount, while compound interest is calculated on both the principal and the accrued interest.
Secured Credit
- A mortgage serves as an example of secured credit, which is backed by an asset.
Benefits of Personal Loans
- Personal loans provide large amounts of money, but they may not necessarily come with special repayment terms or favorable interest rates.
Compound Interest Calculation
- The compound interest on a three-year, $100 loan at a 10% annual interest rate totals $33.10.
Small Purchase Credit
- Credit cards are commonly used for small purchases throughout consumers' lives.
Secured vs. Unsecured Credit
- Secured credit is protected by an asset that equals the loan's value, while unsecured credit lacks such guarantees.
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Description
Test your knowledge about credit and loans with these flashcards. Learn key terms and their definitions, including what banks consider when issuing loans and the implications of credit scores. Perfect for anyone looking to understand the basics of personal finance.
