Cost of Credit

Front

What is the cost of credit?

Back

The cost of credit refers to the total amount of money that a borrower pays to a lender in exchange for borrowing money, including interest and any additional fees.

Front

Define interest rate.

Back

The interest rate is the percentage of the loan amount that a lender charges a borrower for the use of borrowed money, typically expressed on an annual basis.

Front

What is a loan term?

Back

A loan term is the duration over which a borrower agrees to repay a loan, which can range from a few months to several years.

Front

How do you calculate total repayment on a loan?

Back

Total repayment is calculated by multiplying the monthly payment amount by the total number of payments made over the loan term.

Front

What is the formula to calculate interest paid on a loan?

Back

Interest paid = Total repayment - Principal amount.

Front

What is the difference between fixed and variable interest rates?

Back

A fixed interest rate remains the same throughout the loan term, while a variable interest rate can change based on market conditions.

Front

How does a lower interest rate affect total repayment?

Back

A lower interest rate reduces the monthly payment amount and the total repayment amount over the life of the loan.

Front

What is the principal amount in a loan?

Back

The principal amount is the original sum of money borrowed, excluding interest and fees.

Front

What is amortization?

Back

Amortization is the process of gradually paying off a loan through regular payments that cover both principal and interest.

Front

How do monthly payments affect the total cost of a loan?

Back

Higher monthly payments can lead to a lower total cost of the loan, as they reduce the interest accrued over time.