WorksheetsUnderstanding Loans
Total questions: 20
Worksheet time: 10mins
What is a loan?
Money borrowed that must be repaid
Money earned from a job
A savings account
A financial gift
What is the “principal” of a loan?
Total interest over time
The original amount borrowed
The monthly payment
The loan fee
Why is borrowing too much for college risky?
Student loans are forgiven automatically
You might owe more than you can repay based on your future salary
Student loans never charge interest
Colleges pay part of your loan
Private student loans usually require:
A co-signer
No credit check
No repayment
Government approval
FAFSA is used to apply for:
Auto loans
Federal student aid
Credit cards
Car insurance
Which statement about unsubsidized loans is true?
They do not accrue interest while you are in school
They are only available to students with financial need
Interest accrues while you are in school
They are forgiven after graduation
What is one risk of student loans?
They can be erased easily through bankruptcy
They stay with you for years
They don’t affect your future budget
They never charge interest
Which action is considered responsible borrowing?
Borrowing the maximum offered
Ignoring interest rates
Only borrowing what you truly need
Taking loans without reading the terms
Secured personal loans require:
No documentation
Collateral
A very high income
A cosigner
Unsecured personal loans often have higher interest because:
They require a down payment
Lenders take on more risk
They can only be used for emergencies
They require collateral
Which is a danger of personal loans?
Very low interest rates
High fees or predatory lenders
No credit impact
No interest ever charged
A business line of credit allows companies to:
Borrow a fixed amount only once
Borrow only what they need, when they need it
Avoid paying any interest
Buy only equipment
What does the “Character” category in the 5 C’s of Credit refer to?
How much collateral you have
Your credit history and reputation
The loan term
Your total savings
What is collateral?
Monthly income
Assets lenders can take if you don’t pay
A type of credit score
A business plan
What is a mortgage?
A loan used to buy a home
A payday loan
A credit card
A personal loan
Why does a bigger down payment help when buying a home?
It increases the loan amount
It reduces the interest rate
It eliminates the need for a loan
It increases the monthly payments
What happens when you refinance a loan?
It increases interest
It lowers the loan amount and monthly payment
It raises monthly payments
It extends the loan term automatically
Which is a sign of predatory lending?
Clear, transparent terms
APR under 10%
“Guaranteed approval!” or “No credit check!”
Long repayment period
Why do businesses borrow money?
To avoid paying employees
To handle startup costs or expansion
To cancel existing loans
To avoid taxes
What is interest?
The total amount of the loan
The cost of borrowing money
The monthly insurance payment
The borrower’s credit score
