Factors Affecting Loan Amounts and Guarantees

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Questions and Answers

Which of the following factors does NOT directly affect the size of a loan?

  • Borrower's income
  • Length of residence at current address (correct)
  • Item price
  • Existing debt commitments

What does the loan percentage determine?

  • The time frame for loan approval
  • The lender's contribution vs. borrower's contribution (correct)
  • The total repayment amount
  • The interest charged over time

Which of the following best defines guarantees in the context of loans?

  • Assurances requested by the lender for repayment confirmation (correct)
  • The repayment schedule agreed upon
  • The collateral provided by the borrower
  • The total principal amount of the loan

How is the repayment period for a loan characterized?

<p>The timeframe agreed upon for loan repayment (D)</p> Signup and view all the answers

What accurately describes interest rates at commercial banks?

<p>They are the percentage increase on the principal loan amount (B)</p> Signup and view all the answers

Flashcards

Loan Amount

The amount of money a lender is willing to provide to a borrower, determined by factors like the cost of the item, the borrower's income, and the lender's policies.

Loan Percentage

The percentage of the total cost of an item that is covered by a lender. For example, an 80% loan means the lender provides 80% of the cost, and the borrower pays the remaining 20%.

Repayment Period

The time period within which a borrower must repay the loan amount, including the principal and interest. It can be months, years, or a combination of both.

Guarantees

Assets or financial guarantees provided by a borrower to the lender, ensuring the repayment of the loan. They can be tangible (e.g., a house) or intangible (e.g., a credit guarantee).

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Interest Rates

The percentage increase charged by a lender on the principal loan amount. It's an extra fee borrowers pay for using the lender's money.

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Study Notes

Factors Affecting Loan Amount

  • Loan amount depends on several factors
  • Item and price (car, house, trip, or wedding costs)
  • Borrower's income
  • Ability to repay (subtracting other commitments like rent, school fees)
  • Lender's terms and conditions (financing percentage, repayment period, interest rate)
  • Required collateral

Loan Guarantees

  • Collateral (physical or non-physical) is required by the lender to ensure the borrower's commitment to repay
  • Guarantees are provided by the borrower to assure the lender of their seriousness and repayment intentions

Financing Percentage

  • Financing percentage represents the contribution of both the borrower and lender to the total loan amount
  • For example, if a car costs 10,000 dinars, the lender might provide 80% (8,000 dinars), and the borrower would contribute the remaining 20% (2,000 dinars)

Repayment Period

  • This is the agreed-upon timeframe for repaying the loan

Interest Rate (Commercial Banks)

  • Interest rate is the extra amount lender charges borrower on the principal loan amount.

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