A1 - 12/20 (Secured & Advanced 12/13)

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What is the definition of a secured loan?

Back

A secured loan is a type of loan that is backed by collateral, which is an asset that the lender can claim if the borrower fails to repay the loan.

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What is the difference between a secured loan and an unsecured loan?

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A secured loan is backed by collateral, while an unsecured loan is not. Unsecured loans typically have higher interest rates due to the increased risk for the lender.

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What does 'interest rate' mean in the context of loans?

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The interest rate is the percentage of the loan amount that a lender charges as interest to the borrower, typically expressed on an annual basis.

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What is the purpose of collateral in a secured loan?

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Collateral serves as a guarantee for the lender that they can recover their money by claiming the asset if the borrower defaults on the loan.

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How does a credit score affect loan eligibility?

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A credit score is a numerical representation of a borrower's creditworthiness. A higher credit score increases the chances of loan approval and may result in lower interest rates.

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What is the term 'principal' in relation to loans?

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The principal is the original sum of money borrowed in a loan, excluding interest.

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What is a loan term?

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The loan term is the duration over which the borrower agrees to repay the loan, typically expressed in months or years.

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What is the formula to calculate monthly loan payments?

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The formula to calculate monthly loan payments is: M = P[r(1 + r)^n] / [(1 + r)^n – 1], where M is the total monthly payment, P is the loan principal, r is the monthly interest rate, and n is the number of payments.

Front

What is the impact of a higher interest rate on loan payments?

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A higher interest rate increases the total cost of the loan and results in higher monthly payments.

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What does 'defaulting' on a loan mean?

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Defaulting on a loan means failing to meet the legal obligations or conditions of the loan agreement, such as not making scheduled payments.