Maryland Home Improvement PSI Practice Exam

Even if a loan applicant's current income seems adequate to qualify for a certain loan, the Equal Credit Opportunity Act allows a lender to refuse the loan as a high risk if the applicant's main source of income is ___________?

1. Alimony.

2. Commission sales.

3. Pension fund.

4. Child support payments.

The correct answer is: Commission sales.

The correct choice highlights the potential instability associated with income derived from commission sales. Unlike more stable income streams, such as salaries or pensions, commission income can fluctuate significantly based on sales performance. This variability can make it difficult for lenders to assess the applicant’s ability to repay the loan reliably. While alimony, child support payments, and pension funds are generally more predictable and can be long-term sources of income, commission sales often depend on market conditions and individual performance, which can change quickly. As a result, a lender may classify an applicant relying primarily on commission earnings as a higher risk for loan repayment, potentially leading to a refusal based on the risk of inconsistent income.