6.2 Personal Loans

One segment of the U.S. population that is less likely to have a credit card is:

• retirees

• young adults just starting their careers

• women

• minorities

Collateral is:

• required for all personal loans

• only required if a credit score is not high enough

• used with unsecured loans

• property that can be seized by the lender if a loan is unpaid

The interest rate on secured loans is generally ​ (a)   the interest rate changed on unsecured loans

• lower than
• higher than
• about the same as
• not charged compared with

With an installment loan, the borrower:

• receives the full amount of money upfront and then makes regular payments to repay the loan and interest

• is told how much she or he can potentially borrow, and then using a debit card or checkbook, the borrower can access the money and repay the loan and interest through flexible repayments

• can receive a short-term loan from a bank or credit union by pledging an upcoming automatic account deposit, such as a paycheck, as repayment of the loan and fees

• can borrow up to a maximum of $100,000

An advantage of a line of credit from a bank over an installment loan is that:

• if the borrowed funds are repaid, then the credit line is still available for future use without having to apply for another loan

• it is generally an unsecured loan

• the interest rate is competitive with other low-cost forms of credit

• all of the answer choices are correct

Peer-to-peer lending options:

• facilitate loans between groups of individual borrowers

• provide competitive loan terms to borrowers that do not have access to conventional loans

• are accessed through the Internet and required a borrower to have a credit report

• all of the answer choices are correct

What is the APR for a loan that charges a $12 fee to borrow $100 for a loan period of 10 days?

• 120% APR

• 304% APR

• 312% APR

• 438% APR

Answer explanation

Step 1: $12/$100 = ?

Step 2: 365 days/10 days = 36.5 periods in the year

Step 3: ?*36.5 = ??

Step 4: ??*100 =

What is the APR for a loan that charges 2.4% every 30-day payment period?

• 29.2% APR

• 28.0% APR

• 24.3% APR

• 19.9% APR

Answer explanation

Step 1: 0.024

Step 2: 365 days/30 days = ????? periods in the year

Step 3: 0.024*????? = ???

Step 4: ???*100 = ???%

What is the APR for a loan that charges $25 to borrow $300 for 14 days?

• 83.3% APR

• 100.0% APR

• 166.7% APR

• 217.3% APR

Answer explanation

Step 1: $25/$300 = ?

Step 2: 365 days/14 days = ?? periods in the year

Step 3: ?*?? = ???

Step 4: ???*100 = ???%

Choose the option closest to your answer

Which of the following loans has the lowest APR?

• a line of credit with a 29.9% APR

• a payday loan of $220 for a fee of $22 due in 15 days

• a deposit advance of $220 for a fee of $11 due in 35 days

• an installment loan that charges an interest rate of 2.9% per month