Loans and Types

Which of the following factors affects the borrowing limit of an individual?

• Social media activity

• Number of friends

• Income and expenses

• Intelligence

What does borrowing mean?

• Giving money to someone

• Obtaining money with a promise to repay

• Saving money in a bank

• Buying things from a store

_________ is something valuable that you promise to give if you can't pay back a loan.

Loans can be ____________.

• Secured and unsecured

• Protected and unprotected

• Shielded and unshielded

• Safe and unsafe

____________ is a situation where a person gets stuck in a cycle of excessive debt and struggles to repay debt.

You take an education loan to pay for tuition. Does compounding apply?

• Yes

• No

Answer explanation

Education loans gather interest over time. This means the interest gets added to the outstanding loan balance, and you end up paying interest on the interest (compounding).

Borrowing too much money doesn't affect your finances.

• True

• False

You and your sibling both save Rs.50 every week in separate piggy banks. Does compounding apply?

• Yes

• No

Answer explanation

Piggy banks don't offer interest.

A _________ is a person or a company that gives money to someone else with the expectation that it will be paid back later.

Compound interest is a great option if you are ________ it.

• Earning

• Paying

Answer explanation

Remember, compound interest is great if you are earning it, because you get paid interest on any interest you have already earned. But compound interest is bad news if you are paying it. You end up paying interest on top of interest that has already been charged on a borrowing!