Chapter 5 & 6 Economics Study Guide

What is open-end credit?

Answer explanation

a credit source from which a debtor may continually draw money

Why do unsecured loans often entail higher interest rates?

Answer explanation

They carry more risk for creditors.

What widely used kind of credit does the textbook cite as an example of open-end credit?

What is a loan's collateral?

Answer explanation

A loan's collateral consists of valuable goods that a creditor may take and resell in the event that the borrower does not repay his loan.

What are the two parts of a loan?

Answer explanation

the principal and the interest

What is a loan's term?

Answer explanation

the time given to the debtor to pay back the loan

What is installment credit?

Answer explanation

the ability to pay for a purchase with periodic payments according to a loan contract

Which of the following would lenders likely not examine to determine a borrower's credit limit?

• income

• outstanding bills

• length of residence

• past credit experience

The two parts of a loan are the:

• schedule and interest.

• interest and principal.

• principal and term.

• term and schedule.

The time given to a debtor to pay back his loan is known as the loan.

• term

• interest

• interval

• amortization schedule