Cost of Credit

Jessica is considering using a secured loan to finance her airfare to Europe. What is a major risk associated with taking a secured loan in her situation?

• She might have to pay higher interest rates.

• She could lose her violin if she fails to repay the loan.

• She will need a cosigner to get the loan.

• She will have to pay the loan back in a short period.

Why might a borrower choose an unsecured loan over a secured loan, despite potentially higher interest rates?

• Unsecured loans require collateral.

• Unsecured loans have no risk of losing personal assets.

• Unsecured loans are only available for small amounts.

• Unsecured loans have longer repayment periods.

A borrower is comparing a bank loan and a payday loan. What strategic factor should they consider to avoid high costs?

• The speed of loan approval.

• The annual percentage rate (APR).

• The convenience of the loan process.

• The requirement of a cosigner.

What is a strategic advantage of using a credit union for a loan compared to a bank?

• Credit unions offer higher maximum loan amounts.

• Credit unions have lower interest rates due to lower overhead.

• Credit unions require no membership for loans.

• Credit unions provide loans with no interest.

If a borrower has a poor credit history, which type of lending institution might they consider, and what is a potential drawback?

• Banks; they offer high-interest rates.

• Credit unions; they require membership.

• Risk-based lending companies; they have high fees and interest rates.

• Retailers; they offer limited credit options.

What is a strategic reason for a borrower to use a retail store credit card despite high-interest rates?

• To avoid annual fees.

• To receive discounts and advance notice of sales.

• To build a credit history without a cosigner.

• To have access to a higher credit limit.

A borrower is considering a pawnshop loan. What strategic consideration should they make regarding the collateral?

• The collateral will be returned regardless of repayment.

• The collateral must be of low value.

• The collateral will be sold if the loan is not repaid.

• The collateral can be used to secure multiple loans.

What strategic factor should a borrower consider when deciding between a secured and unsecured loan for a large purchase?

• The requirement of a cosigner.

• The interest rate and risk of losing collateral.

• The speed of loan approval.

• The availability of loan forgiveness programs.

Why might a borrower with a limited credit history consider having a cosigner for a loan?

• To avoid paying any interest.

• To increase the chances of loan approval.

• To reduce the loan amount.

• To eliminate the need for collateral.

What is a strategic disadvantage of using a finance company for a loan?

• They offer loans with no interest.

• They require high-value collateral.

• They provide smaller loans with high fees.

• They have lengthy approval processes.