Loans Loan Repayment 5

Question 1

What does it mean to refinance a loan?

Accepted Answer

Taking out a new loan to pay off an existing one, ideally at better terms

Answer

Refinancing replaces your current loan with a new one, often to secure a lower interest rate, lower monthly payment, or different loan term.

Question 2

What is a loan servicer?

Accepted Answer

The company that manages billing, collects payments, and handles customer service on behalf of the loan owner

Answer

A loan servicer handles the day-to-day administration of a loan including collecting payments and managing accounts, often separately from the original lender.

Question 3

What is the effect of making a lump-sum payment toward a loan's principal mid-term?

Accepted Answer

It shortens the loan term and reduces total interest paid if the payment schedule stays the same

Answer

A principal lump-sum payment reduces the outstanding balance, which lowers total interest and can shorten the payoff date if payments remain unchanged.

Question 4

Under an extended federal student loan repayment plan, borrowers must typically have at least how much in outstanding federal loan debt to qualify?

Accepted Answer

$30,000

Answer

The Extended Repayment Plan requires at least $30,000 in outstanding Direct Loans and allows repayment over up to 25 years.

Question 5

What is a loan modification?

Accepted Answer

A formal change to the original loan terms — such as interest rate or term length — agreed upon by borrower and lender to make payments manageable

Answer

Loan modification permanently alters original loan terms to help a struggling borrower avoid default, often lowering the rate or extending the term.

Loans Practice Test

Loans Practice Test

Loans Loan Repayment 5