Question

1. what is the danger of putting up collateral for a loan?
2. explain why the importance of a good credit score is a myth.
3. list three ways the credit - card industry makes money off of customers.
4. what is the difference between an appreciating asset and a depreciating asset? give examples of both.

Explanation:

1. If a borrower defaults on the loan, the lender can seize and sell the collateral, resulting in the borrower losing the asset.
2. A good credit score is not a myth. It is crucial as it affects borrowing terms (interest rates, loan approvals), access to better - priced credit products, and can influence other areas like rental applications or insurance premiums. However, if arguing against it, one could say that in some alternative lending models or for those with significant assets, credit score may not be as decisive. But this is a weak argument overall.
3. Credit card companies make money through interest charges on unpaid balances, annual fees, and transaction fees (charged to merchants when customers use the card).
4. An appreciating asset increases in value over time, like real estate in a growing market or certain stocks. A depreciating asset decreases in value, such as a used car which loses value as soon as it is driven off the lot or electronic devices that become obsolete quickly.

Answer:

1. The lender can seize the collateral if the borrower defaults.
2. It's not really a myth. But if arguing against, one could say in some alternative lending or for asset - rich individuals it may not be decisive.
3. Interest charges, annual fees, transaction fees (from merchants).
4. Appreciating asset: Increases in value (e.g., growing - market real estate). Depreciating asset: Decreases in value (e.g., used car).