Loans can provide an opportunity to buy a new vehicle or home, or deliver short-term cash in an emergency. But understanding how loans and credit work are critical to financial health. If you need to brush up on the ins and outs of loans and borrowing money, read our guide to loans, then test your knowledge with the quiz below!
You scored out of .
1: A. A business contract between a borrower and a bank
2: C. What a lender charges for lending you money
3: A. An interest rate that might change, according to the terms of your contract
4: B. An interest rate that stays the same throughout the loan
5: C. Credit card
6: A. Home mortgage
7: B. A credit card that requires a cash deposit to open an account
When a bank provides you a loan, it agrees to extend credit to you over a certain period of time.
The loan typically includes a percentage fee, or interest, as a cost of borrowing. That interest rate may be fixed throughout the term of your loan, or it may change. Variable interest rates can potentially change, according to the terms of your contract.
When the credit extended to you doesn’t have a set term, or end date, it is considered open-end credit. Credit cards are an example of open-end credit. Closed-end credit, on the other hand, has a set term. For instance, many mortgages are repaid over 30 or 15 years, making them a good example of closed-end credit.
Secured credit cards are a common tool to help build credit history. These cards require a cash deposit, which the bank can use as collateral if you fail to make payments.
Learn the lingo of credit and lending.