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Questions and Answers
Match the following types of loans with their key characteristics:
Personal loans = Unsecured with higher interest rates for small amounts Cash advances = Easy to get with extremely high interest rates Mortgage loans = Secured by purchased property with tax-deductible, low interest rates Small business loans = Available from local banks, require business plan and collateral
Match the following types of loans with their primary purpose:
Personal loans = Easier to obtain for small amounts with average credit history Student loans = Common with reasonable interest rates but can lead to substantial debt Home-equity loans = Allow borrowing against house equity for additions or debt consolidation Cash advances = Considered only when no alternative ways to get money exist
Match the following types of loans with their potential use cases:
Student loans = For recent graduates facing substantial debt Mortgage loans = Enables individuals to buy homes with structured terms and low interest rates Home-equity loans = For home additions, improvements, or debt consolidation Small business loans = Available from local banks, often requiring a business plan and collateral
Study Notes
Types of Loans and Key Considerations
- Personal loans are often unsecured and easier to obtain with an average credit history, typically for small amounts not exceeding $5,000, but with higher interest rates than secured loans.
- Cash advances are easy to get but come with extremely high interest rates, usually for small amounts, and should only be considered when no alternative ways to get money exist.
- Student loans, such as Stafford and Perkins loans, are common and offer reasonable interest rates, but can lead to substantial debt for recent graduates.
- Mortgage loans are typically the biggest loans, secured by the purchased property, and enable individuals to buy homes with structured terms and tax-deductible, fairly low interest rates.
- Home-equity loans and lines of credit allow homeowners to borrow against their house equity for home additions, improvements, or debt consolidation, with tax-deductible, fairly low interest rates.
- Small business loans are available from local banks and require more work, often needing a business plan and personal assets as collateral in case the business fails.
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Description
Learn about the various types of loans available, including car loans, student loans, and home mortgages. Understand the concept of borrowing money from a bank or financial institution and the responsibility of repaying the principal amount along with interest.
