Unit 5 Review: Types of Credit
If you don't proactively choose a different repayment plan option, your Federal student loans will default to the Standard Plan, which has a term of __________.
10 Years
Elizabeth is considering buying a $30,000 car. Which of these financing options will likely lead to the LOWEST monthly payment? A. $3000 down payment, 6% interest, 84 months (more time so pay less each month) B. $3000 down payment, 6% interest, 60 months C. $0 down payment, 6% interest, 60 months D. $0 down payment, 0% interest, 36 months
A. $3000 down payment, 6% interest, 84 months (more time so pay less each month)
Amy and Chuck each buy a house in the same neighborhood for $250,000. Amy's monthly mortgage payment is $400 more per month than Chuck's. Which one of the following statements could explain this difference? A. Amy chose a shorter term for her mortgage, so her monthly payments are higher. B. Chuck has a lower credit score, so his interest payments are also lower. C. Amy made a larger down payment, so her monthly payments are also larger. D. Chuck made a larger down payment, so his monthly payments are larger.
A. Amy chose a shorter term for her mortgage, so her monthly payments are higher.
The shorter your term length, the _______ your monthly payments, and the _______ the total interest you will pay. A. higher, lower B. higher, higher C. lower, lower D. lower, higher
A. higher, lower
Why is it important to consider Annual Fees and APR to credit card offers?
APR will be a factor in how much you pay to borrow money each month, it is best to avoid cards with annual fees. APR determines interest if you carry a balance.
When loans are amortized, monthly payments are _______ , while the interest portion of the monthly payment ________ and the principal portion of the monthly payment _______ over time. A. Constant, Increases, Increases B. Constant, Decreases, Increases C. Variable, Decreases, Increases D. Variable, Decreases, Decreases
B. Constant, Decreases, Increases
Each of the following financial products will help you build a credit history EXCEPT... A. Secured credit card B. Debit card C. Auto Loan D. Credit card
B. Debit card
As a young adult, all of the following are good strategies for building credit, EXCEPT: A. Open a credit card, with your parent or guardian as a cosigner B. Open a checking account, and start using a debit card (you don't owe this later, this is not "credit" since it comes right out of your account immediately, it's like cash) C. Become an authorized user on a credit card used by your parent or guardian D. Open and use a secured credit card
B. Open a checking account, and start using a debit card (you don't owe this later, this is not "credit" since it comes right out of your account immediately, it's like cash)
What financial product am I? I am a type of credit card that requires cardholders to make a security deposit equal to the credit limit on their account. Due to this deposit requirement, I am often a good choice for young people looking to establish a credit history. A. Standard credit card B. Secured credit card C. Overdraft credit card D. Rewards credit card
B. Secured credit card
If you are having trouble making auto loan payments, and are really following a tight budget, which recommendation below represents the WORST advice? (but maybe not terrible) A. Find an extra source of income by taking a second job, working longer hours, asking for a raise, etc. B. Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control C. Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms D. Reduce spending in some other area of your budget so you can direct more funds toward
B. Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control
Which of these statements best explains why it's often a food idea to pay more than the monthly amount due on an amortized loan? A. Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount B. The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly C. The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan D. Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash
B. The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly
Which of the following statements is CORRECT about secured loans? A. They are an example of a credit card B. They require collateral, in the form of assets like a car or a home, to be exchanged for the loan C. In the event of default, the borrower loses nothing except for the down payment D. They usually have higher interest rates as compared with unsecured loans
B. They require collateral, in the form of assets like a car or a home, to be exchanged for the loan
Reading through a credit card disclosure (aka the Schumer Box), you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true? A. When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed B. Your APR will be within that range, depending on the strength of your credit history C. With credit card APRs, cardholders like higher APRs because they earn more D. The APR on credit cards is usually fixed so it won't be adjusted as long as you are a cardholder
B. Your APR will be within that range, depending on the strength of your credit history
List two reasons why it is important for a young adult to establish credit.
Better approval rates. If you have a good credit score, you're more likely to be approved for credit products, like a credit card or loan. Lower interest rates. The higher your credit score, the lower interest rates you'll qualify for. You also learn responsibility.
You have been working for five years after college and are ready to buy your first home. Homes in the area you want to live in cost $550,000. The biggest mortgage you can afford is $300,000. What is the down payment you will need to pay? A. $0 B. $200,000 C. $250,000 D. $300,000
C. $250,000
Based on her current balance, how much credit does this cardholder have available to use? A. $0 B. About $500 C. About $1,600 D. $2,100
C. About $1,600
Select the statement below that accurately describes a characteristic of a credit card. A. You owe the same payment every month B. You must have money deposited into a checking account to use the credit card for purchases C. Making full payments on time every month is the only way to avoid interest charges D. They do not charge interest
C. Making full payments on time every month is the only way to avoid interest charges
What is one benefit of selecting an income-based repayment plan for your student loans? A. If you take a job that pays a low income, you will never have to pay any of your student loans B. Your student loan interest rate will fluctuate based on how much you've earned in the previous year C. Your monthly loan payment will be set based on your income, so that you're not paying more than 20% of income toward your loans D. The total loan amount will be decreased to meet your starting salary at your first post-college job
C. Your monthly loan payment will be set based on your income, so that you're not paying more than 20% of income toward your loans
Based on what you've learned so far, what do you think is the average annual percentage rate (APR) on a payday loan? A. 0% B. 10% C. 30% D. 400%
D. 400%
Which of the following is true about fixed and adjustable-rate mortgages? A. Fixed-rate mortgages have a constant payment every month, but an interest rate that increases during the term of the loan B. They work the same way but are called different names depending if they come from a bank or a credit union C. Fixed-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner D. Adjustable-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner
D. Adjustable-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner
Which of the following statements below is TRUE? A. The cardholder is carrying a balance over from the last period. B. The cardholder was charged interest on her balances for the last period because she made her payment on time. C. If the cardholder makes her minimum payment of $35.00 by the due date, she will NOT be charged interest on her balances. D. If the cardholder pays $523.20 by the due date on the bill, she will pay NO interest to the credit card company.
D. If the cardholder pays $523.20 by the due date on the bill, she will pay NO interest to the credit card company.
What is an advantage of using a credit card? A. It will not affect your credit score or credit history B. Since it is tied directly to your checking account, it prevents you from spending money you do not have C. If you need to carry a balance, the interest rates are generally quite low (less than 5%) D. If you pay off your balances every month in full, it's like getting a short-term interest-free loan
D. If you pay off your balances every month in full, it's like getting a short-term interest-free loan
You see on a commercial that OrangeCo is offering a credit card with a 5% cashback program for all cardholders. What is ONE question you might ask to evaluate how good this offer is? A. Can I choose the picture that is on the front of my credit card? B. Can I get a debit card along with a new credit card? C. Who does OrangeCo use as their spokesperson in the commercial? D. Is there an annual fee on this credit card and how much is it?
D. Is there an annual fee on this credit card and how much is it?
Which of these credit payback strategies would lead to the HIGHEST interest charges? A. Paying off your credit card bill in full every month B. Paying 20% of your credit card balance every month on time C. Making the minimum payment (3% of your credit card balance) every month on time D. Making the minimum payment (3% of your credit card balance) every month with an occasional late payment
D. Making the minimum payment (3% of your credit card balance) every month with an occasional late payment
Credit card disclosure: "Your due date is at least 25 days after the end of the billing cycle. We will not charge you interest on new purchases provided that you have paid your previous balance in full by the due date each month." Identify the true statement. A. If you make the minimum payment on your card within the 25 day period, the credit card company will not charge you interest B. If you pay your previous balance in full after the due date, the credit card company will not charge you interest C. If you make your credit card payment before the due date, you will be charged interest regardless of the amount of your payment D. The 25 days after the end of the billing cycle is referred to as the grace period
D. The 25 days after the end of the billing cycle is referred to as the grace period
Why are payday loans so popular? A. They are a fast, easy way to save money and budget effectively B. They meet the need for quick cash for very large purchases such as cars and homes C. They are a terrific way to build your credit history and improve your credit score D. They are accessible to people who need to borrow small amounts of money and don't have any better options
D. They are accessible to people who need to borrow small amounts of money and don't have any better options
Which of the following statements comparing credit and debit cards is TRUE? A. Far more businesses accept credit cards than debit cards B. Credit cards pull money directly from your bank account, while debit cards get their money from Visa or mastercard C. Credit card companies provide you with a monthly statement, while debit cards do not D. With debit cards, you're spending your own money at point of sale, while with credit cards, you're promising to pay back the money eventually
D. With debit cards, you're spending your own money at point of sale, while with credit cards, you're promising to pay back the money eventually
Which of the following statements is true about this Schumer Box? A. X Depending on your creditworthiness, the APR for a borrower will always either be 8.99%, 10.99% or 12.99% (problem is the word "always" B. There is an introductory APR that is valid only for 1 year, but then the permanent APR is lower than that at 8.99%. C. You will never be charged an APR higher than 14.99% D. You may be charged an APR as high as 28.99% for a late payment
D. You may be charged an APR as high as 28.99% for a late payment
Which of the following is most likely to represent a fixed rate, secured debt? A. a student loan B. a credit card C. a loan from a friend D. a dealer-financed auto loan
D. a dealer-financed auto loan
Explain how a credit card payment works and how a person can avoid getting charged interest.
To avoid interest on credit cards, pay the full statement balance by the due date every billing period. Most credit cards have a grace period between when your monthly statement is generated and when your payment is due, and interest won't be added during this period if you always pay in full.