Loan and Credit Basics Flashcard

Front

What is revolving credit?

Back

Revolving credit is a type of credit that allows the borrower to use or withdraw funds up to a certain limit, repay it, and borrow again. A common example is a credit card.

Front

What are the three main components of a loan?

Back

The three main components of a loan are the principal (the amount borrowed), the interest (the cost of borrowing), and the loan term (the duration for repayment).

Front

Why are secured loans considered less risky for lenders?

Back

Secured loans are less risky for lenders because they are backed by collateral, which means the lender can take the collateral if the borrower fails to repay the loan.

Front

What is the formula for calculating simple interest?

Back

The formula for calculating simple interest is: Interest = Principal x Rate x Time.

Front

If JJ takes a $10,000 loan at 5% interest for 3 years, how much total will he pay back?

Back

JJ will pay back a total of $11,500.

Front

What is the difference between secured and unsecured loans?

Back

Secured loans are backed by collateral, while unsecured loans are not and are based solely on the borrower's creditworthiness.

Front

What does the term 'principal' refer to in a loan?

Back

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

Front

What does 'interest rate' mean?

Back

The interest rate is the percentage of the principal charged by the lender for borrowing money.

Front

What is a credit card?

Back

A credit card is a type of revolving credit that allows users to borrow funds up to a certain limit for purchases, which must be paid back with interest.

Front

What is a loan term?

Back

The loan term is the length of time over which the loan must be repaid.