VirtualSC Economics Honors Practice Exam

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Question: 1 / 400

What is typically the interest rate scenario with credit cards compared to loans?

Lower rates

Same rates

Higher rates

Credit cards generally have higher interest rates compared to most traditional loans. This is primarily due to the revolving credit nature of credit cards, which allows consumers to borrow up to a certain limit and pay off portions of the balance over time. The convenience and flexibility offered by credit cards carry risk for lenders, leading them to compensate with higher interest rates.

In contrast, loans, particularly secured loans like mortgages or auto loans, usually come with lower interest rates because they are less risky for lenders. The borrower typically commits to a fixed repayment schedule and often provides collateral, which gives lenders more security.

Thus, the nature of how debt is structured and the associated risks contribute to the higher interest rates typically encountered with credit cards compared to loans.

VirtualSC Economics Honors Practice Exam

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