Understanding Debt 15-18

What does "debt" mean in financial terms?

• a) Money saved for future use
  

• b) Money borrowed that must be repaid
  

• c) Money earned from investments
  

• d) Money gifted by someone
  

What is the primary purpose of an interest rate on a loan?

• a) To reduce the loan amount
  

• b) To compensate the lender for borrowing money
  

• c) To calculate savings growth
  

• d) To avoid paying taxes
  

Which of the following is considered good debt?

• a) A loan for higher education
  

• b) Using a credit card for luxury items
  

• c) Borrowing money for a vacation
  

• d) Taking out payday loans
  
  

What happens if you fail to repay a loan on time?

• a) Your credit score may decrease
  

• b) You will automatically earn interest
  

• c) Your loan will be canceled
  

• d) The lender will give you more money
  

What is the most important thing to consider before taking a loan?

• b) The design of the loan document
  

• d) The number of bank branches near you
  

• a) How much interest you will pay
  

• c) Whether the lender is a friend