Question

maura had to get a $350 emergency loan at a very high interest rate to pay for dental work. the lender did not need her credit history. if she does not pay back the loan within three weeks, she will have to pay an extra $50. raina says the loan is an example of easy-access credit while maura says it is an example of open-end credit. which statement about the loan is correct?

raina is correct because the loan is a line of credit.
maura is correct because the loan has an interest rate.
raina is correct because the loan has a large fee if it is not repaid on time.
maura is correct because the loan does not have an annual fee.

Explanation:

Define credit types

Let's first understand the two types of credit mentioned in the problem:

• Easy-access credit (often called alternative or high-cost credit) refers to short-term loans that are easy to obtain without a credit check, but carry very high interest rates or fees if not paid back quickly (e.g., payday loans, title loans).
• Open-end credit (or revolving credit) is a pre-approved line of credit that can be used repeatedly up to a certain limit, such as a credit card.

Analyze Maura's loan characteristics

Let's look at the details of Maura's loan:

• It is a $350 emergency loan.
• The lender did not check her credit history.
• It has a very high interest rate.
• If she does not pay it back within three weeks, she faces a large extra fee of $50.

These features (no credit check, short repayment term, high fees for late payment) are classic characteristics of easy-access credit.

Evaluate the claims

Now let's evaluate what Raina and Maura said:

• Raina says the loan is an example of easy-access credit. This is correct.
• Maura says it is an example of open-end credit. This is incorrect because this is a one-time closed-end loan, not a revolving line of credit.

Match with the correct option

Let's evaluate the multiple-choice options:

• Raina is correct because the loan is a line of credit. (Incorrect, it is a one-time loan, not a revolving line of credit).
• Maura is correct because the loan has an interest rate. (Incorrect, Maura is not correct).
• Raina is correct because the loan has a large fee if it is not repaid on time. (Correct, this is a key feature of easy-access/payday loans).
• Maura is correct because the loan does not have an annual fee. (Incorrect, Maura is not correct).

Answer:

• (A) Raina is correct because the loan is a line of credit.
• (B) Maura is correct because the loan has an interest rate.
• (C) Raina is correct because the loan has a large fee if it is not repaid on time. (Correct answer)
• (D) Maura is correct because the loan does not have an annual fee.