Loan Basics

Ready to test your knowledge? You'll have ten multiple choice questions to answer. Click on each question to reveal the question and multiple choice answers. After you've completed answering all ten questions, click "Grade Me!" at the end of the quiz to see how you did.

Question 1

Interest rates are generally lower for secured loans versus unsecured loans. Why?

(A) With a secured loan, the lender retains title to the item being financed until the loan is repaid. If the borrower fails to pay, the lender can repossess the financed item. This reduces lender risk, which is reflected in the interest rate for the loan.	Correct Incorrect
(B) Individuals who buy items that can be secured under the terms of a loan typically have better FICO scores.	Correct Incorrect
(C) Items purchased with secured loans generally hold their value for a longer period of time than items purchased with unsecured loans.	Correct Incorrect
(D) Individuals who prefer secured loans generally earn more income over the loan term and will have better capabilities to repay the loan. This lowers the risk to the lender and subsequently the interest rate charged on the loan.	Correct Incorrect

Question 2

Which of the following is not a characteristic of an "amortized loan"?

(A) You will make the same payment each month over the term of the loan.	Correct Incorrect
(B) Over the loan term, the amount you pay for interest stays the same and the amount you pay to pay down the loan principle remains the same.	Correct Incorrect
(C) Over the loan term, the amount you pay for interest each month will slowly decrease while the amount you pay towards the principal will slowly increase.	Correct Incorrect
(D) You can pay off the loan at any time during the loan term by paying the outstanding loan balance, plus any interest accrued from the first of the month until the day the loan is paid off.	Correct Incorrect

Question 3

When calculating the "Annual Percentage Rate" for a loan, the following items must be used in the calculation:

(A) The interest rate for the loan.	Correct Incorrect
(B) Any loan application or loan origination fee.	Correct Incorrect
(C) Annual fees	Correct Incorrect
(D) All of the above.	Correct Incorrect

Question 4

Which of the following statements is NOT TRUE regarding setting up a "bi-weekly" payment schedule:

(A) When you make payments on a bi-weekly basis, you will make 26 payments over the course of a calendar year.	Correct Incorrect
(B) You should always check with your lender prior to starting a bi-weekly payment plan to make sure that your loan is eligible for such a payment schedule.	Correct Incorrect
(C) Setting up bi-weekly payments on a loan will likely result in the loan being paid off sooner than under a normal monthly payment plan.	Correct Incorrect
(D) Every loan is eligible for a bi-weekly repayment plan.	Correct Incorrect

Question 5

When a store offers 0% interest for 12 months on a credit purchase, generally speaking:

(A) Always take the deal because it is free money!	Correct Incorrect
(B) Interest accrues at the standard rate for the outstanding loan balance. If you pay for the purchase in the 12-month period, you will not pay any interest, but if you do not you will pay all accrued interest charges.	Correct Incorrect
(C) Since you are not paying interest on the outstanding loan balance for the first 12 months, your credit score will not change during that 12-month period.	Correct Incorrect
(D) Its time to stop shopping and start buying. This is the best deal you are going to get!	Correct Incorrect

Question 6

You will likely receive a better interest rate on a loan if you:

(A) Put down a larger down payment.	Correct Incorrect
(B) Have a high FICO score.	Correct Incorrect
(C) Select a loan that has a shorter loan term.	Correct Incorrect
(D) All of the above.	Correct Incorrect

Question 7

When you obtain a "line of credit" from a lender, you:

(A) Are able to borrow any amount up to a maximum at your discretion. You pay interest only on the amount borrowed and have flexible repayment terms.	Correct Incorrect
(B) You borrow a set amount and repay it in fixed monthly installments over a defined term.	Correct Incorrect
(C) You borrow a small amount on a short-term basis and secure that loan against your next pay check.	Correct Incorrect
(D) None of the above.	Correct Incorrect

Question 8

A loan amortization schedule shows:

(A) The ratio of principal and interest paid during each payment period and demonstrates how your loan's principal amount decreases over time.	Correct Incorrect
(B) All of the payments you've made while repaying a loan by amount and date.	Correct Incorrect
(C) The process and timetable for obtaining a loan from the time you fill out an application until your loan is approved.	Correct Incorrect
(D) How the loan amount actually increases over time if you don't make the full payment each month.	Correct Incorrect

Question 9

If you take out a consolidation loan, you will pay less over the repayment period if:

(A) The APR on the consolidation loan is lower than your other loans and you pay the consolidation loan off in the same time period or less than it would have taken you to pay off your other loans or credit card balances.	Correct Incorrect
(B) You are able to reduce your monthly payment from the combined payments of your other loans or credit card balances, regardless of the APR on the consolidation loan.	Correct Incorrect
(C) You are able to extend the repayment period from the time it would take you to pay off your other loans or credit card balances and the APR on the consolidation loan is equal to what you have today.	Correct Incorrect
(D) All of the above.	Correct Incorrect

Question 10

When buying a car and the dealer is offering 0% financing or Cash Back, you should:

(A) Always take the Cash Back.	Correct Incorrect
(B) Always take the 0% financing.	Correct Incorrect
(C) Shop around for the lowest financing rate you can find from other sources and see if the total repayment cost of the lower loan amount (purchase price minus the Cash Back) is less than the 0% financing scenario.	Correct Incorrect
(D) None of the above.	Correct Incorrect

	Correct	Incorrect
Question 1
Question 2
Question 3
Question 4
Question 5
Question 6
Question 7
Question 8
Question 9
Question 10

Article

Financial Quiz

Financial Tool

Poll

Advice

Loan Basics