Question

a lender approves a car loan without verifying income, credit history, or employment. why should the borrower be cautious?
such loans often include predatory terms or extremely high interest
the loan will automatically become a mortgage
the interest rate will be zero at first
the lender cannot legally repossess the vehicle
according to the 20/10 rule, what should a borrower do if their total credit payments exceed 10% of monthly take - home pay?
increase credit card usage
reduce spending and pay down debt
close all credit accounts
switch to a fixed mortgage

Explanation:

First Question:

• Option 1: Loans without verifying income/credit/employment are often predatory, with high interest or unfair terms.
• Option 2: A car loan doesn't automatically become a mortgage (mortgages are for real estate).
• Option 3: Zero - interest initially is not typical for such risky loans.
• Option 4: Lenders can legally repossess vehicles for defaulted car loans. So the correct option is the one about predatory terms/high interest.

• The 20/10 Rule is about managing debt. If credit payments exceed 10% of take - home pay, the borrower should reduce spending and pay down debt.
• Option 1: Increasing credit card usage would worsen debt.
• Option 3: Closing all credit accounts is extreme and not the right approach.
• Option 4: Switching to a fixed mortgage is irrelevant to credit payments exceeding 10% of take - home pay.

Answer:

A. Such loans often include predatory terms or extremely high interest

Second Question: