Massachusetts Real Estate License Practice Test

Which of the following factors influences the computation of interest rates on loans?

1. Profitability

2. Loan tenure

3. Credit score

4. Property value

The correct answer is: Profitability

The factor that most directly influences the computation of interest rates on loans is credit score. A borrower's credit score is an essential indicator of their creditworthiness and helps lenders assess the risk of lending money. Higher credit scores typically qualify borrowers for lower interest rates because they demonstrate a history of responsible borrowing and repayment, reflecting a lower risk of default. Profitability, while a consideration for lenders in their overall business strategy, doesn't directly affect the interest rate on individual loans. Loan tenure can influence the total interest paid or the monthly payment amount but is less impactful on the rate itself. Property value can also play a role, mainly in secured loans where the property acts as collateral, but it does not have the same direct relationship to the individual borrower's risk profile as credit score does.