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# Consumers in California seeking personal loans have fewer

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Director
Joined: 17 Oct 2005
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Consumers in California seeking personal loans have fewer [#permalink]

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30 Nov 2005, 16:44
1
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Question Stats:

60% (01:09) correct 40% (01:20) wrong based on 42 sessions

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Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the United States. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.

Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer.

(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.

(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

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VP
Joined: 22 Aug 2005
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30 Nov 2005, 17:55
A.

it is "higher wages", not "lack of competition" for higher interest rates for personal loans.

C does not explain why ONLY CA banks are charging more interest rates for personal loans.
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Senior Manager
Joined: 29 Aug 2005
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01 Dec 2005, 00:36
A sounds good.
Higher wages... Higher interest rates.

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Director
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01 Dec 2005, 01:05
the OA is A. I chose D because if people do not default, then couldnt the banks hike up the interest rate if they wanted ?

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SVP
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01 Dec 2005, 02:09
yup I got A not entirely convinced but the best in the bunch.

B. doesn't give us any clue, buecause we are told about the interest in personal loan for rest of the country. we don't know in rest of the country whether the interest rate for mortgage is higher or lower.

C. doesn't give a reason why interets rete on personal loan will be higer in CA.

D. this information simply says that interest rate on personal loan will be lower in CA due to lower default risk. now because we are tryinig to refute a causal argument, in order to weaken the argument, we need to find another reason that contributes to the conclusion, not a premise that changes the conclusion.

E. same as D.

so only A stands.
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Director
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01 Dec 2005, 03:11
this information simply says that interest rate on personal loan will be lower in CA due to lower default risk.

thanks nakib i misunderstood D.

If chances are that a person will not pay me back, then i will charge a high interest rate. If that person will pay me back, then i will charge a low interest rate.

Conclusion: banks in cali pay higher interest rates cuz of lack of competiton

A is best

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Intern
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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01 Apr 2012, 14:43
I agree A is the only relevant answer choice but here's my question:

A talks about depositors. Conclusion of the argument talks about personal loans. How does charging people more for depositing translate to higher interest rates for personal loans?

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Intern
Joined: 01 Apr 2012
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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01 Apr 2012, 22:03
pls explain choice D, i am inclined for D

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Senior Manager
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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01 Apr 2012, 22:11
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cangetgmat wrote:
pls explain choice D, i am inclined for D

Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the United States. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.

Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer.

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.
--> here proportion of consumer is irrelevant to the conclusion you need something weakening the relation that due to less banks the interest is higher but A provides another reason why interest rates are higher.
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Manager
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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06 Apr 2012, 08:34
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cangetgmat wrote:
pls explain choice D, i am inclined for D

Unfortunately D can be inferred in 2 ways, one is why you think this is the answer, and the other is "The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States." Which means the risk is low in giving out a personal loan, so ideally the rates should be low. If a market is risky or if a loan is unsecured you will be charged high e.g. credit cards.
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Manager
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GMAT Date: 09-10-2012
Re: Consumers in California seeking personal loans have fewer [#permalink]

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06 Aug 2012, 14:30
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.

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Director
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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06 Aug 2012, 14:39
jaiswalamrita wrote:
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.

Amrita,
your point is valid but let's look again at the ACs.
(E) is more like another premise of the argument but (A) weakens the conclusion by stating an idea that the banks do pay huge salary to hire and retain best officers so the interest rates on personal loans are high.

Hope this helps !!
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Manager
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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06 Aug 2012, 15:01
thevenus wrote:
jaiswalamrita wrote:
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.

Amrita,
your point is valid but let's look again at the ACs.
(E) is more like another premise of the argument but (A) weakens the conclusion by stating an idea that the banks do pay huge salary to hire and retain best officers so the interest rates on personal loans are high.

Hope this helps !!

I understand A also weakens it, but this would be my second choice. On the D day I'll end up choosing E.....looking for some concrete reason to discard this option.

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GMAT Club Legend
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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23 Jun 2016, 04:44
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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31 Mar 2017, 23:11
jaiswalamrita wrote:
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.

Your line of reasoning is correct but "Less interest rate so they get less deposits" this is, I believe, an assumption that you have to make. For example :- If you have option of only 5% interest at your FD and no other option, regardless of what other states bank pay, if that's the best option you can get, you have to opt for that only.

Also E actually strengthen by saying that - yes, there is less competition and that is why high interest rate. Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

We have to find the option that provide alternate reason of High interest rate, that A does.

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Re: Consumers in California seeking personal loans have fewer   [#permalink] 31 Mar 2017, 23:11
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