Patricia Newton is going to buy a new car, and she needs to apply for a loan to cover the purchase. She knows she can get a loan for up to 6 years, but she would prefer a shorter-term loan. She selects a 4-year loan. Patricia reducing her lender's risk by:
A) sharing the interest rate risk.
B) pledging collateral.
C) paying a larger cash deposit.
D) repaying the loan faster.
E) sharing inflation risk with her lender.

Question

Quizplus · Accepted Answer

Repaying the loan faster reduces the lender's risk because it decreases the amount of time that they are exposed to potential default or other risks associated with loaning money. This means the lender is more likely to approve the loan and offer more favorable terms, such as a lower interest rate. Sharing interest rate or inflation risk, pledging collateral, or paying a larger cash deposit may also reduce the lender's risk to some extent, but repaying the loan faster is the most direct way to mitigate risk.

Patricia Newton Is Going to Buy a New Car, and She