Understanding Loans Quiz

What financial activities have Lucy's colleagues engaged in?

• Refinancing student loans, buying stocks, and purchasing houses

• Investing in stocks, buying cars, and purchasing houses

• Buying cars, purchasing houses, and investing in real estate

• Refinancing student loans, buying cars, and purchasing houses

What is the first step Lucy should take to handle loans confidently?

• Save more money

• Apply for a loan

• Understand how loans work

• Consult a financial advisor

What is the principal in a loan?

• The monthly payment

• The fixed amount of money borrowed

• The total amount of interest paid

• The total loan term

How is the monthly interest rate calculated from an annual interest rate?

• Add 12 to the annual rate

• Divide the annual rate by 12

• Subtract 12 from the annual rate

• Multiply the annual rate by 12

What is a variable interest rate?

• An interest rate that is higher for short-term loans

• An interest rate that decreases over time

• An interest rate that can change over time

• An interest rate that remains the same throughout the loan term

What does APR include?

• Only the interest rate

• Only the fees

• Neither the interest rate nor the fees

• Both the interest rate and the fees

How does a lower credit score affect your APR?

• It lowers your APR

• It has no effect on your APR

• It increases your APR

• It makes your APR fixed

What makes up Lucy's total loan payment each month?

• Both the principal and the interest

• Only the interest

• The principal, interest, and fees

• Only the principal

What is the effect of a shorter loan term on monthly payments?

• It increases the monthly payments

• It decreases the monthly payments

• It makes the monthly payments variable

• It has no effect on the monthly payments

Why can shorter-term loans be beneficial?

• They come with higher interest rates

• They force the borrower to pay down the principal faster

• They have lower monthly payments

• They are easier to get approved for