Question

1. define the following vocabulary terms: principal, interest, loan term.

1. using this meter, describe the relationship between your credit score and how much you end up paying back on a loan.

chart showing credit score ranges: 300-629 (bad), 630-689 (fair), 690-719 (good), 720-850 (excellent)

Explanation:

Question 1

• Principal: The initial amount of money borrowed or invested, on which interest is calculated.
• Interest: The cost of borrowing money (or the return on investment), calculated as a percentage of the principal, paid over time.
• Loan Term: The length of time (e.g., in years, months) over which a loan must be repaid, including both principal and interest.

From the credit score meter (ranges: Bad (300 - 629), Fair (630 - 689), Good (690 - 719), Excellent (720 - 850)): A higher credit score (e.g., Excellent/Good) typically means a borrower is seen as less risky. Lenders offer lower interest rates to less - risky borrowers. Since the total amount repaid on a loan is the principal plus total interest (total interest = principal × interest rate × loan term), a lower interest rate (from a higher credit score) leads to less total interest paid. So, as credit score increases (moving from Bad to Excellent), the total amount paid back on a loan (principal + interest) generally decreases. Conversely, a lower credit score (Bad/Fair) means higher interest rates and more total amount paid back.

Answer:

• Principal: Initial borrowed/invested amount (interest - calculated on it).
• Interest: Cost/return (percentage of principal, paid over time).
• Loan Term: Time period to repay loan (principal + interest).

Question 2