Types of Credit 2024

Front

Where do banks get the money to lend out to consumers?

Back

From their clients' savings accounts

Answer explanation

Banks get the money to lend out to consumers from their clients' savings accounts.

Front

How do banks make money off of the credit they issue?

Back

They charge a high interest rate on the loan.

Answer explanation

They make money by charging a high interest rate on the loan, which accumulates over time.

Front

Why does the amount of INTEREST you owe on a loan decrease over time?

Back

With each payment, principal decreases, so interest lowers.

Answer explanation

With each payment, principal decreases, so interest lowers

Front

How do you avoid paying interest on your credit card (or any other loan for that matter)?

Back

Always make the full payment on time

Answer explanation

To avoid paying interest on your credit card, always make the full payment on time.

Front

How can you build up your emergency fund in an unpredictable world?

Back

Save a portion of your allowance or income each month and make it automatic (set it and forget it!)

Answer explanation

Save a portion of your allowance or income each month and make it automatic (set it and forget it!)

Front

What are the advantages and disadvantages of renting a home compared to buying? Advantages of renting: Flexibility, lower upfront costs; Disadvantages: No equity building, limited control

Back

Advantages of renting: Flexibility, lower upfront costs; Disadvantages: No equity building, limited control

Answer explanation

Advantages of renting include flexibility and lower upfront costs, while disadvantages are no equity building and limited control, matching the correct choice.

Front

Which is TRUE when you make only the minimum payment each month? Options: You are charged interest on the remaining balance, Your credit line is restored to its maximum amount, Credit card companies have permission to sell your information, It is the fastest way to pay off your debt

Back

You are charged interest on the remaining balance

Answer explanation

When you make only the minimum payment each month, you are charged interest on the remaining balance, making it important to pay more to reduce debt faster.

Front

Which of the following statements comparing credit and debit cards is TRUE? Far more businesses accept credit cards than debit cards, Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard, Credit card companies provide you with a monthly statement, while debit cards do not, With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

Back

With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

Answer explanation

With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

Front

What's the best reason for paying more than the monthly minimum amount on an amortized loan?

Back

Pays down principal amount quicker

Answer explanation

Paying more than the monthly minimum amount on an amortized loan helps to pay down the principal amount quicker, reducing the overall cost of the loan.

Front

Which of these credit payback strategies would lead to the HIGHEST overall cost? Paying off your credit card bill in full every month, Paying 20% of your credit card balance every month on time, Making the minimum payment (3% of your credit card balance) every month on time, Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

Back

Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

Answer explanation

Making the minimum payment (3% of your credit card balance) every month with an occasional late payment would lead to the HIGHEST overall cost due to added interest and fees from late payments.