Credit Basics 3.1

Which statement best describes the basic relationship between savers and borrowers at a traditional bank?

• The bank pays interest to the savers and gives loans at the SAME interest rates to the borrowers, so it all balances out.
• The bank pays interest to the savers and gives loans at a HIGHER interest rate, so that the bank makes money.
• The bank pays interest to the savers and gives loans at a LOWER interest rate, so the bank makes money.
• The bank makes no money from savers or borrowers.

Which of the following represent secured debt?

• Auto loan
• Student loan
• Credit card
• None of the above

You can typically reduce your loan costs by making a large___________.

• Interest
• Down Payment
• Term

The ___________________ rate refers to how much the bank is going to charge, yearly, for your loan.

• Interest
• Down payment
• Term

Pretend you take out a 30-year fixed rate mortgage for $250,000.  Which of these statements will be true?

• The amount of payment you owe every month will be the same.
• The amount of interest you pay every month will be the same.
• The amount of principal you pay every month will be the same.  
• You are not allowed to pay more than the amount due every month.

Which of the following represent benefits of an installment loan?

• Do not require a credit check, so they're easy to obtain.
• Allow you to make many small purchases, as you need them, as long as you're under your credit limit.
• Usually have a fixed interest rate, so you know exactly how much you'll owe each month.
• Cannot be used to pay your college tuition bill.

For a student loan, you want the interest rate to be___________.

• Low
• High

Which of these does NOT represent a type of credit?

• A certificate of deposit (CD)
• A Federal student loan
• A credit card
• A mortgage

A short _______________ will likely mean higher monthly payments but lower overall costs.

• Interest
• Down payment
• Term

True or False:  To avoid appearing biased, a bank or other lender must offer the same interest rate to all of its borrowers.

• True
• False