Understanding Consumer Credit Costs

Front

Jessica is considering using a secured loan to finance her airfare to Europe. What is a major risk associated with taking a secured loan in her situation?

Back

She could lose her violin if she fails to repay the loan.

Front

Why might a borrower choose an unsecured loan over a secured loan, despite potentially higher interest rates? Options: Unsecured loans require collateral., Unsecured loans have no risk of losing personal assets., Unsecured loans are only available for small amounts., Unsecured loans have longer repayment periods.

Back

Unsecured loans have no risk of losing personal assets.

Front

A borrower is comparing a bank loan and a payday loan. What strategic factor should they consider to avoid high costs?

Back

The annual percentage rate (APR).

Front

What is a strategic advantage of using a credit union for a loan compared to a bank?

Back

Credit unions have lower interest rates due to lower overhead.

Front

If a borrower has a poor credit history, which type of lending institution might they consider, and what is a potential drawback?

Back

Risk-based lending companies; they have high fees and interest rates.

Front

What is a strategic reason for a borrower to use a retail store credit card despite high-interest rates?

Back

To receive discounts and advance notice of sales.

Front

A borrower is considering a pawnshop loan. What strategic consideration should they make regarding the collateral?

Back

The collateral will be sold if the loan is not repaid.

Front

What strategic factor should a borrower consider when deciding between a secured and unsecured loan for a large purchase?

Back

The interest rate and risk of losing collateral.

Front

Why might a borrower with a limited credit history consider having a cosigner for a loan?

Back

To increase the chances of loan approval.

Front

What is a strategic disadvantage of using a finance company for a loan?

Back

They provide smaller loans with high fees.