Understanding Loans and Borrowing

Why do banks charge interest on loans?

• To ensure borrowers pay back quickly

• To discourage people from borrowing

• To make a profit from lending money

• To cover the cost of loan processing

What is the main difference between a secured and an unsecured loan?

• Secured loans require collateral

• Unsecured loans have no interest

• Unsecured loans require collateral

• Secured loans have lower interest rates

What could happen if you fail to repay a secured loan?

• You will be offered a new loan

• You will receive a warning letter

• Your collateral may be taken by the bank

• Your interest rate will increase

Which of the following is a good practice when planning to take out a loan?

• Review your budget to ensure affordability

• Choose the first loan offer you receive

• Borrow more than you need for emergencies

• Rely on future income increases to repay

What is a down payment?

• The total interest paid on a loan

• An initial payment made when buying something on credit

• A fee charged by the bank for processing a loan

• The final payment made to close a loan