Unit 8 Loans Test

Front

What is an installment loan?

Back

An installment loan is a type of loan that is repaid over time with a set number of scheduled payments. Each payment includes both principal and interest.

Front

How do you calculate the Annual Percentage Rate (APR)?

Back

APR is calculated by taking the finance charge divided by the loan amount, then multiplying by the number of periods in a year.

Front

What is the formula for calculating the maturity value of a single-payment loan?

Back

Maturity Value = Principal + Interest, where Interest = Principal x Rate x Time.

Front

What is ordinary interest?

Back

Ordinary interest is calculated on a 360-day year basis, typically used for short-term loans.

Front

How do you find the finance charge on an installment loan?

Back

Finance Charge = Total Payments - Loan Amount.

Front

What is the purpose of a loan amortization schedule?

Back

A loan amortization schedule outlines each payment's breakdown into principal and interest over the life of the loan.

Front

What is the difference between a secured and unsecured loan?

Back

A secured loan is backed by collateral, while an unsecured loan does not require collateral and is based on the borrower's creditworthiness.

Front

How is the interest on the first monthly payment calculated?

Back

Interest on the first monthly payment is calculated by multiplying the loan balance by the monthly interest rate.

Front

What does it mean to repay a loan in monthly installments?

Back

Repaying a loan in monthly installments means making regular payments each month until the loan is fully paid off.

Front

What is the significance of the loan term?

Back

The loan term is the length of time over which the loan must be repaid, affecting the monthly payment amount and total interest paid.