Test — Test Answers

Sam needs to take out a personal loan for $8,900 to pay for a trip to Europe with his classmates. His bank has offered him the four loans listed in the chart below. If all of the loans are compounded monthly, which of the four loans will give Sam the lowest monthly payment? Loan Duration (Months) Interest Rate A 12 9.50% B 24 8.75% C 36 7.75% D 48 6.60% a. loan A b. loan B c. loan C d. loan D Please select the best answer from the choices provided

What is the difference between a service charge and a finance charge?a.A service charge is a fee which must be paid every month, while a finance charge is a one-time fee assessed at the beginning or end of a loan period.b.A service charge is a flat fee charged to a borrower, while a finance charge is a fee charged to a borrower based on the amount borrowed.c.A service charge is a fee assessed by a lender, while a finance charge is a fee charged by a financial institution, such as a bank.d.A service charge is a fee assessed by a lender other than interest, and a finance charge is the total of the interest paid on a loan and the service charge.

Why is the interest rate of a loan one of the most important things to consider when shopping around for loans?a.The interest rate should be ignored, because there’s nothing a consumer can do to change it. b.The interest rate is essentially how long you have to pay off your loan, and the shorter the better.c.The interest rate can drastically change the total amount paid to the lender, in the case of mortgages, up to thousands of dollars. d.The interest rate does not change, even between banks, so choosing the right time to borrow is essential.

Why is credit history such an important factor in being considered for a loan?a.Credit history shows how responsible people are in making payments on time and their general ability to make monthly payments.b.Credit history shows a bank precisely how many valuable things a potential borrower owns.c.Credit history shows that a person is willing to make extreme sacrifices in order to borrow money.d.Credit history is only helpful when applying for a personal loan.

Collateral can be beneficial for borrowers when applying for a loan by __________.a.offering lenders additional financial gain if borrowers defaults on their loansb.lessening the total loan amount, making it easier for borrowers to be approvedc.giving lenders protection against financial loss and more reason to approve loansd.demonstrating that borrowers have ownership of high-end goods and can obviously make their loan payments