Fundamentals of Credit and Loans Quiz

Credit serves as a financial tool allowing individuals to borrow funds for various purposes.

Collateral is an asset offered by a borrower to secure a loan, reducing the lender's risk of loss.

Debt consolidation involves merging multiple debts into a single loan, often with more favorable terms.

Payday loans are short-term, high-interest loans often due on the borrower's next payday.

Mortgage loans typically demand the highest credit scores due to the significant loan amounts and longer terms.

A conventional fixed-rate mortgage maintains a stable interest rate and consistent monthly payments throughout the loan term.

Marital status is generally not a factor in assessing creditworthiness; lenders focus on financial stability.

Secured loans involve collateral, while unsecured loans do not, relying on the borrower's creditworthiness.

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

Installment cards are not a standard credit card type, as they function differently with fixed payments over time.

Default occurs when a borrower fails to make scheduled loan payments, breaching the loan agreement.

LTV is the ratio of the loan amount to the appraised value of the collateral, influencing loan terms.

Credit analysis involves assessing a borrower's financial history, behavior, and ability to repay a loan.

The prime rate is the benchmark interest rate at which banks lend to their most creditworthy customers.

Loan amortization involves distributing loan payments over the loan term, covering both principal and interest.

A grace period offers borrowers time before interest accrues, usually after the due date.

Refinancing involves replacing an existing loan with a new one, often to secure better terms or lower interest rates.

Fixed-rate loans maintain a constant interest rate, providing predictability for borrowers, unlike variable-rate loans.

Co-signing involves agreeing to repay a loan if the primary borrower defaults, sharing the responsibility.

A prepayment penalty is a fee imposed for settling a loan before its scheduled repayment date.