Borrowing and Lending in Personal Finance Quiz

Secured loans require collateral, such as a house for a mortgage loan.

APR represents the annual cost of borrowing, including interest and fees, expressed as a percentage.

Failure to repay a loan may lead to legal consequences, such as lawsuits or asset seizure.

Interest represents the cost of borrowing, typically calculated as a percentage of the loan amount.

Revolving credit allows borrowing up to a predetermined limit and can be repaid or borrowed again.

Credit scores gauge an individual's likelihood of repaying debt based on credit history.

A higher credit score often leads to lower interest rates, reflecting lower risk for lenders.

A cosigner agrees to take responsibility for loan repayment if the primary borrower fails to pay.

APY represents the effective annual interest rate, including compounding, on savings accounts.

Fixed-rate loans offer stable interest rates over the loan term, reducing risk for borrowers.

Secured loans require collateral, while unsecured loans do not.

Debt-to-income ratio assesses the proportion of income used for debt repayment, indicating financial health.

Grace periods offer borrowers additional time after the due date to make payments without incurring penalties.

Prepayment penalties impose fees on borrowers who repay loans before the agreed-upon term.

Compound interest applies to both the principal and any accrued interest, leading to exponential growth.