Loans Personal Loans 2

Question 1

What is a prepayment penalty on a personal loan?

Accepted Answer

A fee charged for paying off the loan early

Answer

A prepayment penalty is a fee some lenders charge if a borrower pays off the loan balance before the scheduled end of the term.

Question 2

Which type of personal loan is typically used to consolidate high-interest credit card debt?

Accepted Answer

Debt consolidation loan

Answer

A debt consolidation loan combines multiple high-interest debts into a single personal loan, often at a lower interest rate.

Question 3

A 'hard inquiry' on a credit report occurs when:

Accepted Answer

A lender pulls credit for a formal loan application

Answer

A hard inquiry happens when a lender accesses your credit report as part of a formal credit application and can temporarily lower your credit score.

Question 4

What is the typical range of personal loan terms offered by US banks and credit unions?

Accepted Answer

6 months to 7 years

Answer

Personal loan terms in the US typically range from 6 months to 7 years depending on the lender and loan amount.

Question 5

Which of the following would most likely result in a higher interest rate on a personal loan?

Accepted Answer

Low credit score and high DTI

Answer

A low credit score combined with a high debt-to-income ratio signals greater repayment risk, causing lenders to charge higher interest rates.

Loans Practice Test