Question

1. An example of an unsecured debt is a(n) _____. (1 point)
student loan
auto loan
mortgage
mobile home loan
2. Unsecured debt interest rates are usually _____ when compared to secured debt. (1 point)
higher
lower
the same as
unpredictable

Answer 1

# 1

Hint: secured debt has collateral behind it (ie you don't make a payment, they take away the item put up for collateral)

Answer 2

example: a car loan has the car as collateral, so that would make an auto loan a secured loan

Answer 3

So then is it a student loan?

Answer 4

correct, you can't take away someone's education after they have learned it

Answer 5

Because the mortgage and mobile home have the house.

Answer 6

so that sort of explains why student loans have higher rates than car loans and why student loan debt is not forgiveable under ch 7 bankruptcy (whereas car loans are)

Answer 7

yes exactly

Answer 8

Because lenders have this safety net of repossessing the item put up for collateral if payments are not made, this means that secured loans are typically loans with lower interest rates

think of interest rates being tied to the risk of the investment...higher risk = higher interest rate

Answer 9

So I am guessing that number two is higher?

Answer 10

yes exactly, unsecured debt is more risky because if the person defaults, then you lose money and have no way to get it back (because there's no collateral to seize and sell)

Answer 11

Could you help me out with another one?

Answer 12

sure

Answer 13

You have a student loan for $12,674.00. What number is the rate multiplier in the I = Prt formula if you have an average credit rating?
7.15
7.80
0.0715
0.0780

Answer 14

Secured

Unsecured

Credit

APR (%)

APR (%)

Excellent

5.75

6.15

Good

6.20

6.65

Average

7.15

7.80

Fair

8.95

9.75

Poor

9.90

12.45

(1 point)

Answer 15

do you have a table that goes along with this?

Answer 16

ok nvm

Answer 17

it's a student loan, so it's unsecured debt

Answer 18

Lol. I'd attach a file but it won't let me save it correctly.

Answer 19

so you're only going to focus on the "unsecured" interest rates

Answer 20

So that's the second number under each one.

Answer 21

then you locate the value that's under "average"

so that looks like 7.80

not 100% though because this table looks a bit odd

Answer 22

Well the first number under each one is secured. & The second is Unsecured. It just pasted funny.

Answer 23

now the answer isn't just 7.80 because that would imply you have 780% interest

you need to convert 7.80% to decimal form to get 0.0780

Answer 24

so that is your rate multiplier and it will stand in place of r

Answer 25

Thank you very much. (: There is one more question if you're interested.

Answer 26

sure I have some "interest" in it...lol sry lame joke

what's the question

Answer 27

Haha. That was pretty funny.

Answer 28

lol thanks

Answer 29

Your parents purchase a mobile home for $84,505.00 and secure it to the ground. If they have an excellent credit rating and using the table above, how much is the interest at the end of the first month?
$264.08
$316.89
$373.23
$454.21

Answer 30

Mortgage

Secured

Mortgage

Unsecured

Auto

Secured

Auto

Unsecured

Credit

APR (%)

APR (%)

APR (%)

APR (%)

Excellent

3.75

4.50

5.30

6.45

Good

4.30

4.85

5.95

7.10

Average

5.15

5.70

6.50

7.90

Fair

6.50

7.00

7.15

8.45

Poor

8.25

9.30

8.40

9.95

Answer 31

ok so this is secured debt...and they even subconciously nail this message home by saying "and secure it to the ground" even though this fact is irrelevant

Answer 32

Oh my goodness. That's so confusing!

Answer 33

The table I mean.

Answer 34

it's a mortgage because it's a home

Answer 35

so you're going to focus on the mortgages

Answer 36

the secured mortgages specifically

Answer 37

Okay.

Answer 38

seems odd why they put "unsecured mortgage"

i don't think there is such a thing

Answer 39

unless you somehow make it impossible for the lender to repossess the house

Answer 40

anyways, this is secured debt

Answer 41

Haha. Okay. So we are just focusing on that.

Answer 42

i see that the interest rate under "mortgage secured" is 3.75%

Answer 43

yes

Answer 44

is that correct? the rate is 3.75% right?

again the table is a bit odd

Answer 45

For excellent, yes.

Answer 46

ok great

Answer 47

now just use this formula

I = Prt

to find the interest

Answer 48

in this case

P = 84505
r = 0.0375
t = 1/12

Answer 49

because t is in years, so t = 1/12 represents one month

Answer 50

Well I can't because I don't have a scientific calculator. Only a simple one on my phone. Which gave me the answer of "264.078125"

Answer 51

getting the same thing and you can use google as a calculator

so that rounds to $264.08

Answer 52

Yay. Thank you.

Answer 53

you're welcome