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Personal Loan Jargon: Decode The Loan Terms

Questions

Question 1: How is the word ‘principal’ defined in the context of a personal loan? 

  1. The cumulative interest paid over the duration of the personal loan. 
  2. The base amount borrowed before interest is calculated. 
  3. The yearly cost of borrowing expressed as a percentage. 
  4. The loan repayment period. 

(Hint: Focus on the amount a borrower receives upfront before loan interest or fees are applied.) 

Question 2: How is APR (annual percentage rate) defined in the vocabulary of personal loans?

  1. The term refers to the combined yearly expenses of borrowing, made up of interest and personal loan related fees.
  2. The monthly flat interest rate charged to the original loan amount. 
  3. The portion of borrowed funds reserved for collateral or insurance.
  4. The total sum to be paid, split equally across the months in the loan term. 

(Hint: This figure shows the actual annual cost of borrowing, which makes comparing loan offers easier.)

Question 3: Which description best fits the term ‘collateral’ in secured personal loans? 

  1. The minimum credit score requirement for loan approval. 
  2. An asset offered to the lender as security for the loan, in case the borrower defaults. 
  3. A co-signer who promises to repay the loan if the borrower can’t pay. 
  4. The part of your income that you reserve to pay off debts. 

(Hint: Think about the assets or guarantees you might offer to reassure the lender of your repayment. Discover how defaulting on a loan can affect you.)

Question 4: What does ‘loan term’ refer to in personal loans? 

  1. The predetermined monthly loan payment amount. 
  2. The length of time to repay the entire loan. 
  3. The penalties incurred for repaying the loan ahead of schedule. 
  4. The complete cost of borrowing, including all fees and interest. 

(Hint: Consider the schedule that sets the duration of loan repayments. Find out how you can use old jewelry to make your loan payments.)

Question 5: What does the term ‘prepayment penalty’ mean in personal loan vocabulary? 

  1. A fee for overdue loan payments. 
  2. A fee for repaying your loan before the end of the term. 
  3. The extra interest charged for choosing an extended loan term. 
  4. A fee charged for spending the loan funds on unauthorized expenses. 

(Hint: Paying off your loans early may be discouraged by lenders as it limits their earnings from interest charged.)

Learn more about Minute Loan Center’s Personal Loans

Answers & Rationales

Question 1

  • Correct Answer: B: The term ‘principal’ refers to the original borrowed amount, separate from interest charged to your personal loan.
  • Rationale for A: This is the accumulated interest, separate from the loan principal you get when you apply for different types of installment loans. 
  • Rationale for C: This amount is the borrowing cost, or APR, not the principal loan amount. 
  • Rationale for D: That refers to the duration of the personal loan, not the principal sum. 

Question 2

  • Correct Answer: A: The term ‘annual percentage rate’ (APR) is the comprehensive yearly cost of borrowing money, including interest, plus applicable personal loan fees. 
  • Rationale for B: The flat monthly rate is the nominal interest rate, different from APR.
  • Rationale for C: APR does not encompass collateral or insurance charges. 
  • Rationale for D: This statement refers to how payments are broken down over time, not the APR. 

Apply for a Minute Loan Center loan to find out what your APR will be. 

Question 3 

  • Correct Answer: B: ‘Collateral’ is a personal loan term that refers to an asset a borrower offers as security, which the lender can claim in the event of default. 
  • Rationale for A: Your credit score is considered independently from collateral when assessing your loan eligibility. However, you can still access loan products even with bad credit. 
  • Rationale for C: A co-signer is an individual who provides the loan repayment guarantee, and they’re not an asset. 
  • Rationale for D: This statement describes the debt-to-income ratio, which in loan vocabulary is the amount of debt a person has relative to their income, not collateral.

Question 4 

  • Correct Answer: B: Loan term refers to the period over which the personal loan must be repaid.
  • Rationale for A: Although the monthly payment is determined by the loan amount, interest rate, and the loan term, it is not the term itself. 
  • Rationale for C: Prepayment penalties address early loan payoff consequences, while the loan term refers to the repayment duration. 
  • Rationale for D: The total borrowing cost, which includes the principal, interest, and fees, is a monetary figure, and is distinct from the loan term, which is a measure of the time it takes to repay the personal loan.

Did you know that Minute Loan Center offers online loans in several U.S. states?

Question 5

  • Correct Answer: B: In loan vocabulary, a prepayment penalty is a contractual fee imposed for early loan repayment.
  • Rationale for A: Failure to make installments in time results in late fees, and these are separate from penalties for early loan settlement. 
  • Rationale for C: A more extended repayment period means you pay more interest overall, but this is not considered a penalty. 
  • Rationale for D: Lenders do not typically penalize borrowers for how they spend the loan funds.

Minute Loan Center does not charge a prepayment fee! Apply for a loan now

Disclaimer: 

The Quzzies are provided by Minute Loan Center for informational purposes only to help customers understand credit usage and available loan options. Personal loans should be used responsibly for short-term or unexpected financial needs and are not intended as a long-term financial solution. Customers experiencing financial hardship or credit difficulties are encouraged to seek assistance from a qualified credit counseling organization.

Loan approval and terms are subject to verification of application information, underwriting review, and compliance with applicable state law. Not all applicants will qualify for the lowest advertised rates or for same-day funding. Funding times may vary based on bank processing schedules and customer verification requirements. Fees, repayment terms, and product availability differ by state. Please review your loan agreement carefully for complete terms and conditions. Please borrow responsibly. Loans are intended for short-term financial needs and are not a long-term financial solution.