Financial Pitfalls Flashcard

Front

What is a payday loan?

Back

A short-term, high-interest loan typically due on the borrower's next payday.

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How do payday loans trap borrowers?

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Borrowers may take out multiple payday loans from different lenders, leading to a cycle of debt.

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What is the typical APR for payday loans?

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Payday loans often have an APR that can exceed 400%.

Front

What is the probability of winning the lottery?

Back

The probability of winning the lottery can be extremely low, such as 1 in 175,000,000.

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What is a rent-to-own transaction?

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A rental agreement that allows the renter to purchase the item after a certain period.

Front

What is a disadvantage of rent-to-own agreements?

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Consumers often end up paying more than the item's retail value.

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What is fraud?

Back

An intentional deception to secure unfair or unlawful gain.

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What is predatory lending?

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Lending practices that impose unfair or abusive loan terms on borrowers.

Front

What are common reasons people use payday loans?

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Many use them for non-emergency expenses, such as bills or shopping.

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What is the difference between secured and unsecured loans?

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Secured loans are backed by collateral, while unsecured loans are not.