Question

Straight-term loans are generally:

1) longer in duration than amortized loans.
2) more popular now than amortized loans.
3) shorter in duration than amortized loans.
4) less costly to the borrower, all other conditions being equal.

Answer 1

Straight-term loans are generally shorter in duration than amortized loans.

Step-by-step explanation:

Straight-term loans are generally shorter in duration than amortized loans. While amortized loans are repaid over a set period of time with regular payments, straight-term loans have a shorter repayment period and often require a lump-sum payment at the end of the loan term. Straight-term loans are also known as balloon loans.

For example, a 30-year mortgage loan is an example of an amortized loan where the borrower makes regular monthly payments over the course of 30 years. On the other hand, a straight-term loan may have a term of 5 or 10 years and require the borrower to make regular payments for that period of time, with a larger final payment due at the end.

Therefore, option 3) shorter in duration than amortized loans, is the correct answer.