Doug must borrow $12,000 to complete his college education. Which of the following would NOT be likely to reduce the finance charge rate?
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A. B. C. D.C
The correct answer is C. If Doug went to a state college rather than a private college, it would not likely reduce the finance charge rate.
Explanation:
When someone borrows money, the finance charge rate is the amount of interest charged on the loan. Finance charge rates can vary depending on a variety of factors, including the type of loan, the amount borrowed, and the borrower's creditworthiness.
Let's look at each of the answer choices and examine whether they would likely reduce the finance charge rate for Doug's loan:
A. If Doug's parents took out an additional mortgage on their house for the loan, this might lower the finance charge rate because the loan is now secured by their property, reducing the risk to the lender.
B. If the loan was insured by the federal government, this might lower the finance charge rate because the government's guarantee reduces the risk to the lender.
C. If Doug went to a state college rather than a private college, this is unlikely to have any effect on the finance charge rate. The cost of attendance and the amount of the loan would be the same, regardless of whether he attended a state college or a private college.
D. If Doug's parents co-signed the loan, this might lower the finance charge rate because the lender may view this as reducing the risk of default.
Therefore, answer choice C is the correct answer because it is the only one that is unlikely to have any effect on the finance charge rate.