Understanding Interest

What is the primary purpose of an interest rate?

• To set the monthly repayment amount

• To decide the loan approval

• To calculate the annual cost of borrowing

• To determine the loan duration

How do banks use the money deposited in savings accounts?

• They distribute it to shareholders

• They use it to pay employee salaries

• They store it in vaults

• They make loans and investments

What is compound interest?

• Interest that is paid monthly

• Interest earned on both the initial deposit and previously earned interest

• Interest earned only on the initial deposit

• Interest that decreases over time

Why might a lender charge a higher interest rate?

• If the borrower is considered risky

• If the borrower is a long-term customer

• If the borrower has a high credit score

• If the loan amount is small

In the example of a car loan, what does the total repayment amount include?

• Only the principal amount

• Only the interest charges

• Both the principal and interest charges

• Only the down payment