Loan Terminology Quiz

Which component of a loan payment reduces the outstanding principal balance?

• Principal

• Interest

• Loan Term

• APR

What does the 'r' represent in the compound interest formula A = P(1 + r/n)^(nt)?

• Total time period

• Principal amount

• Interest rate

• Number of times interest is compounded

What does the 't' represent in the simple interest formula?

• Time period

• Interest rate

• Principal amount

• Total interest

What does the variable r represent in the simple interest formula?

• Interest rate

• Principal amount

• Time period

• Accrued interest

Which term refers to the cost of borrowing money?

• Principal

• Interest

• Loan Term

• Monthly Payment

Which term describes the process of spreading out a loan into a series of fixed payments?

• Amortization

• Capitalization

• Depreciation

• Inflation

Which term refers to the original amount of money invested or loaned?

• Interest

• APR

• Amortization

• Principal

What is the process of gradual loan repayment through scheduled payments called?

• Depreciation

• Amortization

• Capitalization

• Inflation

What does APR stand for in financial terms?

• Annual Payment Rate

• Annual Percentage Rate

• Annual Principal Rate

• Annual Profit Rate

What is the effect of a higher interest rate on the total cost of a loan?

• Has no effect

• Decreases the total cost

• Increases the total cost

• Reduces the principal