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WorksheetsCost of Credit
Total questions: 20
Worksheet time: 10mins
Jessica is considering using a secured loan to finance her airfare to Europe. What is a major risk associated with taking a secured loan in her situation?
She might have to pay higher interest rates.
She could lose her violin if she fails to repay the loan.
She will need a cosigner to get the loan.
She will have to pay the loan back in a short period.
Why might a borrower choose an unsecured loan over a secured loan, despite potentially higher interest rates?
Unsecured loans require collateral.
Unsecured loans have no risk of losing personal assets.
Unsecured loans are only available for small amounts.
Unsecured loans have longer repayment periods.
A borrower is comparing a bank loan and a payday loan. What strategic factor should they consider to avoid high costs?
The speed of loan approval.
The annual percentage rate (APR).
The convenience of the loan process.
The requirement of a cosigner.
What is a strategic advantage of using a credit union for a loan compared to a bank?
Credit unions offer higher maximum loan amounts.
Credit unions have lower interest rates due to lower overhead.
Credit unions require no membership for loans.
Credit unions provide loans with no interest.
If a borrower has a poor credit history, which type of lending institution might they consider, and what is a potential drawback?
Banks; they offer high-interest rates.
Credit unions; they require membership.
Risk-based lending companies; they have high fees and interest rates.
Retailers; they offer limited credit options.
What is a strategic reason for a borrower to use a retail store credit card despite high-interest rates?
To avoid annual fees.
To receive discounts and advance notice of sales.
To build a credit history without a cosigner.
To have access to a higher credit limit.
A borrower is considering a pawnshop loan. What strategic consideration should they make regarding the collateral?
The collateral will be returned regardless of repayment.
The collateral must be of low value.
The collateral will be sold if the loan is not repaid.
The collateral can be used to secure multiple loans.
What strategic factor should a borrower consider when deciding between a secured and unsecured loan for a large purchase?
The requirement of a cosigner.
The interest rate and risk of losing collateral.
The speed of loan approval.
The availability of loan forgiveness programs.
Why might a borrower with a limited credit history consider having a cosigner for a loan?
To avoid paying any interest.
To increase the chances of loan approval.
To reduce the loan amount.
To eliminate the need for collateral.
What is a strategic disadvantage of using a finance company for a loan?
They offer loans with no interest.
They require high-value collateral.
They provide smaller loans with high fees.
They have lengthy approval processes.
What strategic benefit does a borrower gain by using a bank loan over a payday loan?
Lower interest rates and better terms.
Faster access to funds.
No need for a credit check.
No requirement for collateral.
What strategic factor should a borrower consider when choosing between different sources of consumer credit?
The number of credit cards they already own.
The total cost of credit, including fees and interest rates.
The popularity of the lending institution.
The color of the credit card.
Why might a borrower choose a bank loan for a home purchase instead of using a credit card?
Credit cards offer lower interest rates.
Bank loans provide closed-end installment credit.
Credit cards have no annual fees.
Bank loans require no credit history.
What strategic consideration should a borrower make when using a title loan?
The loan has no interest.
The car title is not required as collateral.
The risk of losing the car if the loan is not repaid.
The loan can be repaid over several years.
What strategic advantage does a borrower have by using a major credit card from a bank instead of a retail store credit card?
Lower interest rates and broader acceptance.
Higher interest rates and limited use.
No annual fees and exclusive store discounts.
Easier approval process and no credit check.
Which of the following is NOT a feature that makes a secured loan less costly than an unsecured loan?
A high interest rate
Collateral
Less risk for the financial institution
All of these are correct
A loan backed by collateral
Unsecured Loan
Secured Loan
American culture and business have convinced consumers that using _____ is normal.
credit
cash
checks
gift cards
The interest rate a credit card user will be charged on the unpaid portion of their balance
High Rate Method
Credit
Credit Bureau
Annual Percentage Rate (APR)
Loan that doesn't have any collateral attached (ex. Credit Cards)
Unsecured Loan
Secured Loan
