Test your loan savvy

Correct answers

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

Fast facts: What you need to know about loans

Loans are credit

When a bank provides you a loan, it agrees to extend credit to you over a certain period of time.

Review the interest rate

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.

Check the timeline for repayment

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.

Build your 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.