Application 9F - 9G pg. 47 - 49

Question 1

Define collateral

Answer 1

collateral - property belonging to the borrower that the lender will hold until the loan is repaid, as a way of ensuring that the borrower has an incentive to repay the loan

Question 2

Define secured loans

Answer 2

secured loans - loans backed with collateral often having a lower interest rate since the bank since the bank has less risk, knowing that if they do not get repaid, they can repossess the collateral and sell it to get their money back

Question 3

Describe the unsecured loans

Answer 3

> involve greater risk for the lender since they are not backed with collateral
often have higher interest rate due to the greater risk

Question 4

Define wage garnishment

Answer 4

wage garnishment - court order demanding that a borrower’s employer take a specified amount of an employee’s wages each payday and pays the creditor directly

Question 5

Define and describe down payment

Answer 5

down payment - large initial cash payment to cover part of the cost of the item whenever a loan is needed to cover part of the cost of buying a product

Question 6

Define and describe equity

Answer 6

Banks know that if a borrower has equity, he is less likely to default on a loan because he has partial ownership in the item.

Question 7

List some ways that a person can build a credit history

Answer 7

1. Apply for a secured credit card
2. Get someone to cosign a loan
3. Become an authorized user on a credit card