Module 2 Borrowing Assessment Answers

Overview of Credit:

●Credit : the ability to borrow coin now, and pay it back later

●Loan : Money that you borrow from a lender and promise to pay dorsum on a set schedule

●Interest : the actress amount of coin that serves as your cost to borrow money

● Before borrowing money, make sure the fiftyoan payments fit into your spending plan

Collateral and Guarantees:

● Collateral: something yous provide the lender to secure a loan

○ Ex. yous pledge an asset (automobile) to the lender to secure the loan

■ If you lot practise not repay the loan, the lender tin take the nugget and sell information technology to

repay role/all of your loan

● Guarantee: a form of collateral

○ Ex. co-signing (co-signer is equally responsible for the loan as the person

applying for the loan)

● Secured Loan: the borrower pledges (gives) collateral to the lender for the loan

○ Ex.

● Unsecured Loan: unsecured loan is not backed past collateral

○ Ex. student loans, credit cards

● Asset: something valuable that you own, like a car, savings accounts, and property such

every bit your dwelling

○ Some items by and large cannot be used every bit collateral unless they are used to

secure the purchase of that item itself

■ Furniture

■ Clothing

■ Kitchenware

● Home Purchase Loan: made for the purpose of buying a home

○ Secured by the dwelling you are buying (then y'all tin can lose the home if you lot exercise not

repay the loan as agreed)

● Home Refinancing: replaces an existing home loan past paying it in full and replacing it

with a new abode loan

○ Cash-out refinance loan allows y'all to borrow more money than is owed on the

loan beingness replaced

○ Refinance home loans to obtain lower involvement rate, get money for dwelling house repairs,

or for other personal needs (i.east. investments)

● Dwelling Equity: the electric current market value of your home minus what you owe (your

mortgage loan balance) for the house

○ Allow y'all to infringe coin that is secured by your dwelling

○ Two types:

■ I-fourth dimension loan for a lump sum, typically at a fixed interest rate (habitation

improvement loans)

■ Habitation disinterestedness line of credit works like a credit card:

● Borrow as much money equally you want upwardly to a pre-set limit

● Interest rate for a line of credit is unremarkably variable

● Consumer Installment Loans: Used to pay for purchases and other expenses for you

Module 2 Borrowing Assessment Answers,

Source: https://www.studocu.com/en-us/document/virginia-commonwealth-university/choices-in-consumer-society/module-2-borrowing-basics/2085517

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