1. What is the primary purpose of a loan?
- A. To provide temporary financial assistance
- B. To accumulate interest for banks
- C. To encourage people to spend more
- Answer: A A loan provides financial assistance to individuals or businesses to meet their short-term or long-term needs.
2. Which of the following is NOT a type of loan?
- A. Personal Loan
- B. Education Loan
- C. Investment Fund
- Answer: C Investment funds are pools of money collected for investment purposes, not a type of loan.
3. What does the term "EMI" stand for?
- A. Early Monthly Installment
- B. Equated Monthly Installment
- C. Easy Monthly Interest
- Answer: B EMI stands for Equated Monthly Installment, which is the fixed monthly payment to repay a loan.
4. What is the collateral in a secured loan?
- A. A guarantor's promise
- B. An asset pledged as security
- C. A down payment
- Answer: B Collateral is an asset pledged as security for a loan, which the lender can claim if the borrower defaults.
5. What is the key difference between a fixed and floating interest rate?
- A. The type of loan it applies to
- B. Fixed stays constant, while floating varies with market rates
- C. Floating is only for short-term loans
- Answer: B Fixed rates remain constant throughout the loan term, whereas floating rates fluctuate with market changes.
6. Which document is essential to apply for a loan?
- A. Bank Statement
- B. Credit Report
- C. Loan Agreement
- Answer: C A loan agreement outlines the terms and conditions of the loan, though bank statements and credit reports may be required during the application process.
7. What is the tenure of a loan?
- A. The amount of money borrowed
- B. The time period for repayment
- C. The interest rate charged
- Answer: B Loan tenure is the duration agreed upon to repay the loan, typically expressed in months or years.
8. What does "defaulting on a loan" mean?
- A. Repaying the loan early
- B. Failing to repay as agreed
- C. Renegotiating the loan terms
- Answer: B Defaulting on a loan means failing to make payments as per the agreed terms.
9. Which of the following can negatively impact your credit score?
- A. Making timely loan payments
- B. Having multiple loans at once
- C. Missing loan repayments
- Answer: C Missing loan repayments can lower your credit score, as it shows poor repayment behavior.
10. What is a prepayment penalty?
- A. A fee for late payments
- B. A fee for paying off a loan early
- C. A higher interest rate for defaulting
- Answer: B A prepayment penalty is a fee charged by lenders if you repay a loan before the agreed tenure ends.