Florida Teacher Certification Examinations (FTCE) Subject Area Practice Test

Which institutions are known for providing personal loans?

1. Banks and credit unions

2. Payday lenders and pawn shops

3. Investment firms and insurance companies

4. Government agencies and non-profits

The correct answer is: Banks and credit unions

Personal loans are typically provided by banks and credit unions because these institutions have the necessary financial resources and regulatory frameworks to lend money to individuals. Banks offer a variety of loan products, including personal loans, which often come with competitive interest rates and flexible repayment terms. Credit unions, being member-owned cooperatives, typically offer personal loans with lower rates and fees compared to traditional banks. Both banks and credit unions prioritize lending to individuals based on creditworthiness, income, and ability to repay which ensures that they can manage their lending risk effectively while serving their customers. This makes them the primary institutions for personal loans in the financial market. On the other hand, options like payday lenders and pawn shops often provide loans with much higher interest rates and less favorable terms, making them less suitable for traditional personal loans. Investment firms and insurance companies generally focus on investment products and risk management rather than personal lending, while government agencies and non-profits may provide assistance or grants but do not typically function as lenders for personal loans.