Understanding Types of Loans

What is an Open-End Loan?

• A loan that allows borrowers to continue adding purchases up to a set credit limit.

• A one-time loan for a fixed amount.

• A loan backed by collateral.

• A loan that doesn't require collateral.

What is a Closed-End Loan?

• A loan that allows borrowers to continue adding purchases up to a set credit limit.

• A one-time loan for a fixed amount.

• A loan backed by collateral.

• A loan that doesn't require collateral.

What is a Secured Loan?

• A loan that allows borrowers to continue adding purchases up to a set credit limit.

• A one-time loan for a fixed amount.

• A loan backed by collateral.

• A loan that doesn't require collateral.

What is an Unsecured Loan?

• A loan that allows borrowers to continue adding purchases up to a set credit limit.

• A one-time loan for a fixed amount.

• A loan backed by collateral.

• A loan that doesn't require collateral.

Refer to the text and answer each question completely. 1. Lenders charge interest because they earn profit.

• They earn profit.

• They reduce the loan amount.

• They distribute free funds.

• They meet government regulations.

Loans improve a person’s standard of living by _____.

• facilitating investments in education, housing, or small businesses

• accumulating excessive debt without productive outcome

• restricting access to credit facilities

• causing financial instability

Comparing loans is confusing because of diverse loan terms and hidden fees; standardizing the comparison criteria can solve the problem.

• Because diverse loan terms and hidden fees create confusion; standardize loan information.

• Because loans are identical; no standardization is needed.

• Because interest rates are fixed; comparing loans is easy.

• Because all fees are clearly disclosed; there is no confusion.

A lien is sometimes necessary for lenders because it serves to secure a loan with collateral.

• It secures a loan with collateral.

• It reduces the interest rate on the loan.

• It simplifies the loan application process.

• It increases the borrower's credit score.

Interest and APR are related because interest represents the cost of borrowing while APR includes additional fees over the period.

• Interest represents the cost of borrowing while APR also includes additional fees and costs.

• Interest and APR are completely unrelated.

• APR is solely the interest rate without any fees.

• Interest is calculated after APR.

What are personal loans commonly used for?