Question

question 5 of 8
how do loan terms affect the cost of credit?
select a response.

• longer loan terms have lower monthly payments and lower interest
• shorter loan terms have higher monthly payments and lower overall interest
• loan terms are based on your pay schedule and how often you get paychecks
• loan terms only apply to loans with collateral but do not apply to those without collateral

Explanation:

To determine the correct answer, we analyze each option:

• Option 1: Longer loan terms usually mean more total interest paid (even with lower monthly payments), so this is incorrect.
• Option 2: Shorter loan terms mean higher monthly payments (since the principal is paid off faster) but less overall interest (because interest accrues for a shorter time), so this is correct.
• Option 3: Loan terms are about the duration to repay the loan, not pay schedule, so this is incorrect.
• Option 4: Loan terms apply to all types of loans (with or without collateral), so this is incorrect.

Answer:

B. Shorter loan terms have higher monthly payments and lower overall interest