How does defaulting on a loan affect a borrower's credit score?

it significantly lowers the credit score

What is 'interest' in the context of loans?

the fee charged by the lender for borrowing money

What does 'default' mean in the context of loans?

failing to repay a loan as agreed

What is an 'interest-only loan payment'?

Payment that only covers the interest accrued

Which of the following best describes a 'secured loan'?

A loan backed by collateral such as property

What is an unsecured loan?

a loan without required collateral

What is a 'credit score'?

numerical representation of credit worthiness

What does the 'prime rate of interest' refer to?

lowest interest rate that banks offer to credit worthy clients

What does the term 'loan principal' refer to?

original amount borrowed without interest

What is a 'grace period' in the context of loan repayment?

a period during which no payments are required

Which of the following can help prevent loan default?

creating a budget and tracking bills

What is a 'line of credit'?

A flexible borrowing limit that can be used as needed

What are the consequences of defaulting on a loan?

loss of collateral and legal action

a person who guarantees to pay the loan if the borrower defaults

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LOANS - terminology for financial literacy

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Questions 16

Answers

1
Which of the following factors can negatively impact a credit score?
not paying bills on time
paying bills on time
maintaining a long credit history
having multiple loans you have paid off
2
How does defaulting on a loan affect a borrower's credit score?
it significantly lowers the credit score
it improves the credit score
it has no impact
it temporarily increases the credit score
3
What is 'interest' in the context of loans?
total repayment amount
original amount borrowed
the monthly payment amount
the fee charged by the lender for borrowing money
4
What does 'default' mean in the context of loans?
paying off a loan early
increasing the loan amount
failing to repay a loan as agreed
negotiating new loan terms
5
What is an 'interest-only loan payment'?
Payment that covers the principal +interest
A payment that pays down the principal
A payment that reduces the loan balance to zero
Payment that only covers the interest accrued
6
Which of the following best describes a 'secured loan'?
A loan backed by collateral such as property
A loan with fixed interest rate
A loan that does not require collateral
A loan with no repayment schedule
7
What is an unsecured loan?
a loan with variable interest
a loan without required collateral
a loan only available to businesses
a loan with a variable interest rate
8
What is a 'credit score'?
total amount of credit a person has used
interest rate offered on a loan
numerical representation of credit worthiness
amount of debt a person owes
9
What does the 'prime rate of interest' refer to?
highest interest rate charged by banks
average interest rate across all loans
highest interest rate that banks offer to credit worthy clients
lowest interest rate that banks offer to credit worthy clients
10
What does the term 'loan principal' refer to?
total amount of interest paid on a loan
original amount borrowed without interest
monthly payment amount
total repayment including interest
11
What is a 'grace period' in the context of loan repayment?
a period when the loan amount increases
a penalty period for late payments
a period when interest rates are reduceed
a period during which no payments are required
12
What does the term 'accrued' mean in financial contexts?
amount earned but not yet paid
an amount paid in advance
an amount repaid to the borrow
an amount refunded to the borrower
13
Which of the following can help prevent loan default?
skipping occasional payments
ignoring payment reminders
creating a budget and tracking bills
taking out additional loans
14
What is a 'line of credit'?
A loan with a fixed repayment schedule
A loan that required collateral
A fixed loan amount that must be repaid in full
A flexible borrowing limit that can be used as needed
15
What are the consequences of defaulting on a loan?
improved credit score
reduction in interest rates
loss of collateral and legal action
increase in loan amount
16
What is co-signer?
a person who receives the loan funds
a person who sets the loan terms
a person who collects the payments for the lender
a person who guarantees to pay the loan if the borrower defaults

LOANS - terminology for financial literacy Flashcards | StudBud