Question

16 which of the following is a disadvantage of a long-term loan?

reduced monthly payments
more interest accrues on the loan
unqualified borrowers are approved
increased financial security

Explanation:

Analyze the characteristics of long-term loans

Using the Loan Repayment Terms knowledge point
Long-term loans spread principal repayment over a longer duration, which reduces the monthly payment amount but keeps the debt outstanding for many years.

Evaluate the total cost of borrowing

Using the Cost of Debt knowledge point
Because the principal remains unpaid for a longer period, interest continues to accumulate over that extended timeframe, resulting in a much higher total amount of interest paid compared to a short-term loan.

Assess the given options

• Reduced monthly payments: This is generally considered an advantage, not a disadvantage.
• More interest accrues on the loan: This is a major disadvantage because it increases the total cost of borrowing.
• Unqualified borrowers are approved: Loan term length does not bypass qualification standards.
• Increased financial security: Carrying debt for longer does not inherently increase financial security.

Answer:

• Reduced monthly payments
• More interest accrues on the loan (Correct answer)
• Unqualified borrowers are approved
• Increased financial security