Question 5 [Fill in the blanks] - MCQ Questions (1 Mark) - Chapter 1 Class 8 Economics - Introduction to Banks - Economics

A personal loan is a loan that customers can take for any personal purpose, such as medical expenses, wedding expenses, travel expenses, etc. It usually has a _______ rate of interest and requires minimal documentation.

A. High

B. Low

C. Moderate

D. Variable

Answer:

Answer by Student

So, the correct answer is option (A): high .

Detailed Explanation by Teachoo

Let’s check all the options and see why they are correct or not:

• Option (A) High - High means very large or great in amount or degree. This is the best word to describe the rate of interest on a personal loan, as it is usually higher than other types of loans, such as home loans or car loans. This is because personal loans are unsecured loans, which means they do not require any collateral or security from the borrower. So, the lender charges a higher interest rate to cover the risk of default or non-payment. So, this is correct .
  
  
• Option (B) Low - Low means small or little in amount or degree. This is not the best word to describe the rate of interest on a personal loan, as it is usually lower than the rate of interest on a savings account or a fixed deposit. This is because personal loans are loans, which means they involve borrowing money from someone and paying it back with interest. So, the lender charges a lower interest rate to attract more customers and earn more income. So, this is incorrect .
  
  
• Option (C) Moderate - Moderate means average or medium in amount or degree. This is not the best word to describe the rate of interest on a personal loan, as it is usually neither too high nor too low compared to other types of loans, such as home loans or car loans. This is because personal loans are unsecured loans, which means they do not require any collateral or security from the borrower. So, the lender charges a moderate interest rate to balance the risk and reward of lending money. So, this is incorrect .
  
  
• Option (D) Variable - Variable means changing or fluctuating in amount or degree. This is not the best word to describe the rate of interest on a personal loan, as it is usually fixed or constant for the duration of the loan. This is because personal loans are short-term loans, which means they have to be repaid within a few months or years. So, the lender charges a fixed interest rate to ensure a steady and predictable income from the loan. So, this is incorrect .

Thus, option (A) is correct .