Because of the compounding effect:
A) people with high credit scores often have difficulty obtaining loans.
B) people with low credit scores often have difficulty obtaining loans.
C) a small loan balance can become large.
D) a large loan balance becomes smaller.

Question

Quizplus · Accepted Answer

The compounding effect refers to interest being charged on the principal amount as well as on any accrued interest. This means that over time, a small loan balance can become much larger due to the added interest. Therefore, option C is correct. Options A and B are incorrect as credit scores do not directly impact the compounding effect. Option D is also incorrect as the compounding effect would cause a large loan balance to become even larger over time.

Because of the Compounding Effect