Types of Credit Questions and Answers Grade A+

Credit Any arrangement where you get "stuff" (money, goods, services), and agree to pay for it in the future Loan An agreement where you are credited with a fixed amount (usually of money) for a fixed period of time, usually with interest Interest Rate The percentage charged for the privilege of borrowing money Principal The amount you borrow Term The amount of time you have to repay your principal Collateral Master01 | October, 2024/2025 | Latest update 1 | P a g e | © copyright 2024/2025 | Grade A+ Something valuable that the lender can take as payment if you can't pay back your loan (like a house or car) Co-signer Someone who legally agrees to take responsibility for a person's debt if they cannot repay it Installment loan Loan used to finance a specific purchase for a specific amount of time; regular payments pay the interest and portion of the principal Revolving credit Open line of credit that can be used for any purchases as long as you're under the limit; payments vary monthly based on size of the debt Secured debt Debt tied to a specific tangible asset that can be used as collateral and reposed if payments are no tmade Unsecured debt Master01 | October, 2024/2025 | Latest update 1 | P a g e | © copyright 2024/2025 | Grade A+ Debt NOT tied to a specific asset or that cannot be repossessed if payments are not made Variable-rate loan Interest rate can change, based on prime rate or index rate, over the course of the loan Fixed-rate loan Interest rate is determined before loan is granted and remains constant as long as ontime payments are being made