Question

1. an unsecured loan is characterized by:

a) having no collateral backing it, just higher interest rates
b) requiring a car or home as collateral if and lower interest rates
c) always having the lowest interest rate regardless of collateral
d) being impossible to default on

1. a variable interest rate means:

a) the rate stays the same for the entire loan term
b) the rate can change based on market conditions
c) you can choose to pay different amounts each month
d) the loan has no interest charges

1. a fixed interest rate:

a) changes monthly based on your credit score
b) remains the same throughout the loan term
c) only applies to credit cards
d) is always higher than a variable rate

1. an installment loan requires:

a) paying the full balance whenever you want
b) only paying interest each month
c) regular, scheduled payments of a set amount
d) no payments until the end of the term

1. which is an example of revolving credit?

a) a car loan
b) a mortgage
c) a student loan
d) a credit card
in the following section, determine two things: is the loan secured or unsecured and if the payment schedule is revolving or installment
be mindful of the question numbers!

1. mortgage

a. secured, revolving
b. secured, installment
c. unsecured, revolving
d. unsecured, installment

1. credit card

a. secured, revolving
b. secured, installment
c. unsecured, revolving
d. unsecured, installment

1. auto loana. secured, revolving

b. secured, installment
c. unsecured, revolving
d. unsecured, installment

1. student loana. secured, revolving

b. secured, installment
c. unsecured, revolving
d. unsecured, installment

Explanation:

• Question 8: An unsecured loan is characterized by having no collateral backing it. Collateral is an asset (like a car or house) that a lender can claim if the borrower defaults. Unsecured loans rely more on the borrower's creditworthiness rather than an asset as security.
• Question 9: A variable - interest rate means the rate can change based on market conditions. For example, if the prime rate (a benchmark interest rate) changes, a variable - rate loan tied to it will also change.
• Question 10: A fixed interest rate remains the same throughout the loan term. This provides predictability for borrowers as their interest payments do not fluctuate.
• Question 11: An installment loan requires regular, scheduled payments of a set amount. Each payment typically includes both principal and interest, and the loan is paid off over a fixed period.
• Question 12: A credit card is an example of revolving credit. Revolving credit allows borrowers to spend up to a certain limit, make payments (which can be minimum or more), and then reuse the credit.
• Question 13 (Mortgage): A mortgage is a secured loan (collateral is the property) and is an installment loan (fixed - payment schedule over a long term, e.g., 15 or 30 years).
• Question 14 (Credit Card): A credit card is an unsecured loan (no collateral like a house or car is put up) and is revolving (can be used, paid, and reused).
• Question 15 (Auto Loan): An auto loan is secured (collateral is the vehicle) and is an installment loan (fixed payments over a set period, e.g., 3 - 5 years).
• Question 16 (Student Loan): Most student loans (especially federal ones) are unsecured (no specific collateral tied to the loan) and are installment loans (payments are made over a fixed period after a grace period).

Answer:

1. A
2. B
3. B
4. C
5. D
6. b
7. d
8. b
9. c