Credit & Loan Vocabulary

The principal of a loan is

• the percentage of the loan that must be paid to the lender in addition to the loan amount.

• the total amount paid when the loan is paid off.

• the amount of money loaned before any fees or interest.

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An interest rate is

• a fixed amount that you pay each month until the term of the loan is over.

• the dollar amount of money you pay to the lender in addition to the principal.

• the percentage of the original loan that you are paying in addition principal.

• the quantifiable amount of how much you care about something.

A loan term is

• the amount of time over which the borrower is expected to pay back the loan.

• a contract that is signed when agreeing to a loan.

• how it is decided if collateral is needed for a particular loan or not.

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Secured Vs. Unsecured loans has to do with

• if the money is kept in a safe location like a bank.

• if there is a background check completed on the borrower.

• if the borrower provides collateral to the lender in case of being unable to pay back the loan.

• how confident the loan is in its self-worth. Also known as insecure loans.

If a person borrows $5,000 on a five-year loan with a 4.5% interest rate, they face a monthly payment of $93.22 for the following five years.

What is the principal amount of this loan?

• $5,000

• 4.5%

• $93.22

• 5 years

If a person owes $10,000 on a credit card at 6% and they pay $200 each month, it will take them 58 months, or nearly five years, to pay off the balance.

What is the interest rate on this loan?

• $10,000

• 6%

• $200

• 58 months

A person owes $10,000 on a loan with a 20% interest rate, and $200 monthly payments over 108 months, or nine years.

What is the term for this loan?

• $10,000

• 20%

• $200

• 9 years

Joe buys a $35,000 truck.  He put a $3,000 down payment on it taking out the loan.  The loan monthly payments are $467.47 over 7 years.

What is the principal on this loan?

• $35,000

• $3,000

• $32,000

• 7 years

Joe buys a $35,000 truck.  He put a $3,000 down payment on it taking out the loan.  The loan monthly payments are $467.47 over 7 years.

What is the term for this loan?

• $35,000

• $3,000

• $32,000

• 7 years

Chad buys a house for $200,000 with a $25,000 down payment.  His bank gives him a 15-year mortgage at 4.4% interest.

What is the principal amount of his loan?

• $200,000

• $25,000

• $175,000

• $225,000