Which of the following will result in a higher interest rate on a loan?A.A large amount of paperwork necessary to administer the loanB.High resale marketability of the loanC.Short time until the loan must be repaidD.Low risk that the borrower will fail to pay back the loanE.Tax exemption on the interest income for the loanSUBMITarrow_backPREVIOUS
Question
Which of the following will result in a higher interest rate on a loan?A.A large amount of paperwork necessary to administer the loanB.High resale marketability of the loanC.Short time until the loan must be repaidD.Low risk that the borrower will fail to pay back the loanE.Tax exemption on the interest income for the loanSUBMITarrow_backPREVIOUS
Solution
The factor that will result in a higher interest rate on a loan from the options provided is A. A large amount of paperwork necessary to administer the loan.
Here's why:
A. A large amount of paperwork necessary to administer the loan: More paperwork means more administrative work, which increases the cost of the loan for the lender. This cost is often passed on to the borrower in the form of higher interest rates.
B. High resale marketability of the loan: This would typically lower the interest rate because the lender can easily sell the loan to another party if needed.
C. Short time until the loan must be repaid: Short-term loans typically have lower interest rates than long-term loans because the lender's money is at risk for a shorter period of time.
D. Low risk that the borrower will fail to pay back the loan: Lower risk typically results in lower interest rates because the lender is less likely to lose money on the loan.
E. Tax exemption on the interest income for the loan: This would typically lower the interest rate because the lender can keep more of the interest income.
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