#1
What is the meaning of APR in the context of loans?
Annual Percentage Rate
ExplanationThe annualized interest rate on a loan.
#2
What is collateral in the context of loans?
A security pledged for the repayment of a loan
ExplanationProperty or assets offered to secure a loan.
#3
What does FICO stand for in credit scoring?
Fair Isaac Corporation
ExplanationThe company providing the most commonly used credit scoring system.
#4
What is a grace period on a credit card?
The time allowed to repay a loan without incurring interest
ExplanationA period where no interest is charged on credit card balances if paid in full.
#5
What is the debt-to-income ratio used for in the context of loans?
To measure an individual's ability to manage debt relative to their income
ExplanationAssesses the proportion of income that goes towards debt payments.
#6
What is the difference between secured and unsecured loans?
Unsecured loans require collateral, while secured loans do not
ExplanationSecured loans are backed by collateral, while unsecured loans are not.
#7
What is the role of a cosigner in a loan agreement?
To guarantee the borrower's repayment
ExplanationAssumes responsibility for loan repayment if the primary borrower defaults.
#8
What is a subprime loan?
A loan offered to individuals with poor credit history
ExplanationA loan granted to borrowers with low credit scores or poor credit history.
#9
What is a credit score, and how is it typically measured?
It is a numerical representation of an individual's creditworthiness
ExplanationA score indicating a person's credit risk, typically calculated by credit bureaus.
#10
What is the purpose of a co-signer on a loan?
To act as a guarantor for the borrower's repayment
ExplanationAssumes responsibility for loan repayment if the borrower defaults.
#11
What is the significance of the Loan-to-Value (LTV) ratio in mortgage lending?
It compares the loan amount to the appraised value of the property
ExplanationDetermines the risk level of a mortgage by comparing the loan amount to the property's value.
#12
What is the difference between simple interest and compound interest on a loan?
Simple interest is charged on the principal amount only, while compound interest is charged on both the principal and accumulated interest
ExplanationInterest calculated solely on the initial amount vs. interest calculated on the initial amount and accrued interest.