#1
Which of the following documents is typically required for a loan application?
Proof of income
ExplanationProof of income is often required to assess the borrower's ability to repay the loan.
#2
What does APR stand for in the context of loans?
Annual Percentage Rate
ExplanationAPR represents the total cost of borrowing, including interest and fees, expressed as a percentage.
#3
What is the purpose of a 'credit score' in the loan application process?
To measure the borrower's creditworthiness
ExplanationA credit score is a numerical representation of the borrower's credit history and risk of default.
#4
Which of the following factors can affect a borrower's credit score?
Payment history
ExplanationPayment history, including timely payments and any defaults, significantly influences a borrower's credit score.
#5
Which of the following is a type of collateral commonly used in loan applications?
Inventory
ExplanationInventory is an asset that can be pledged as collateral in a loan application.
#6
What is a 'cosigner' in the context of loan applications?
A person who signs a loan with the borrower and assumes equal responsibility for repayment
ExplanationA cosigner shares responsibility for repaying the loan and can enhance the borrower's creditworthiness.
#7
What is the typical length of a loan term?
30 years
ExplanationThe typical loan term is often 30 years, especially for mortgage loans, determining the period for repayment.
#8
What is the difference between a secured loan and an unsecured loan?
Secured loans require collateral, while unsecured loans do not
ExplanationSecured loans are backed by collateral, providing the lender with an asset in case of default, unlike unsecured loans.
#9
What is the purpose of a 'debt-to-income ratio' in loan applications?
To measure the borrower's ability to repay a loan by comparing their debt to their income
ExplanationThe debt-to-income ratio assesses if the borrower has sufficient income to manage existing debts along with the new loan.
#10
What is a 'loan origination fee'?
A fee charged by the lender for processing a new loan application
ExplanationA loan origination fee covers the administrative costs of processing a new loan application.
#11
What is 'loan forbearance'?
The process of delaying or reducing loan payments temporarily
ExplanationLoan forbearance allows borrowers to temporarily pause or reduce loan payments during financial hardship.
#12
What is 'loan consolidation'?
The process of combining multiple loans into a single loan with a new interest rate and repayment terms
ExplanationLoan consolidation merges multiple loans into one, simplifying repayment with new terms.