Consumer Loan Evaluation Quiz

Why do banks use credit scoring when evaluating consumer loan applications?

• To ensure every applicant is approved

• To make loan decisions based purely on a borrower's income

• To objectively assess the borrower's creditworthiness and reduce lending risk

• To replace all other forms of financial evaluation

Which factor is commonly considered when evaluating a consumer loan application?

• The applicant's credit history

• The applicant's favorite brand of car

• The applicant's social media activity

• The applicant's political affiliation

What is one of the primary challenges small businesses face when applying for loans?

• Having too much collateral

• Difficulty in providing sufficient financial records

• A lack of customer demand for their products

• Strict government ownership regulations

Which of the following is a significant risk associated with small business lending?

• High liquidity of small business assets

• Key person risk due to reliance on owner-managers

• Guaranteed profitability of small businesses

• Reduced competition in the lending market

What is a key characteristic of a small business according to financial institutions?

• It must have at least 50 employees

• It is independently owned and operated

• It must have a revenue of over $10 million

• It is required to be publicly listed

What is a common precaution taken by banks before granting consumer loans?

• Offering loans without checking the borrower's income

• Conducting credit scoring and verifying income details

• Approving loans based only on verbal agreements

• Avoiding the use of credit reports

Which of the following methods is used to evaluate a project's effectiveness by comparing total benefits to total costs?

• Sensitivity analysis

• Cost-benefit analysis

• Trend analysis

• Discounted cash flow analysis

What is the primary purpose of credit scoring?

• To determine the amount of tax a company owes

• To assess the probability of a borrower repaying a loan

• To increase bank profitability through higher fees

• To eliminate the need for credit reports

Which of the following best describes the 'Character' aspect of credit assessment?

• The borrower's past financial history and trustworthiness

• The borrower's ability to generate cash flow

• The borrower's available assets to secure a loan

• The external economic conditions affecting the borrower

Which external factor can significantly influence lending decisions?

• The borrower's personal lifestyle choices

• The country's macroeconomic conditions

• The borrower's relationship with bank staff

• The borrower's social media presence