Understanding Types of Loans

What is a loan?

• A sum of money borrowed that is expected to be paid back with interest.

• A grant given by the government.

• A type of asset.

• A type of investment.

The principal in a loan is ...

• The amount originally borrowed

• The interest charged on the loan

• Fees associated with the loan

• The total repayment amount

Which type of loan allows borrowers to repeatedly use the loan up to a set credit limit?

• Open-End Loans

• Closed-End Loans

• Secured Loans

• Unsecured Loans

Collateral refers to ...

• An asset offered to a lender as security for a loan

• A loan given without any security

• An interest paid on a loan

• A type of unsecured debt

Comparing loans is confusing due to multiple fees and varying terms, and the problem is solved ...

• Only considering the interest rate

• By using the APR to account for all costs

• By focusing solely on the loan term

• None of the above

A lien is sometimes necessary for lenders because it ...

• It gives the lender a legal claim on the property as collateral.

• It increases the interest rate on the loan.

• It allows lenders to lend more money without any security.

• It eliminates the need for a security deposit.

Mortgage loan is

• a type of loan for purchasing property

• a type of loan for buying vehicles

• a personal loan for travel

• a loan for paying tuition fees

What is the difference between a fixed mortgage rate and an adjustable mortgage rate?

• Fixed rate has a constant interest rate; adjustable rate changes over time.

• Fixed rate interest changes over time; adjustable rate is constant.

• Both fixed and adjustable rate mortgages maintain the same interest rate over the life of the loan.

• Fixed rate mortgage offers variable interest rates while adjustable rate offers fixed payments.

Fill in the blank: Lenders check _______ scores of borrowers before approving loans.

• credit

• income

• debt

• bank

Identify the types of loans that require collateral and the reason collateral is needed.

• Secured loans require collateral to reduce the lender's risk.

• Unsecured loans require collateral to reduce the lender's risk.

• Both secured and unsecured loans require collateral.

• None of the above.