7.1 Credit Basics

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

• They charge a large, one-time fee at the start of the loan

• They charge a high interest rate on the loan

• They take out a small fee each month from your checking account

• This is a trick question - they DON'T make money!

Which of the following is NOT a typical type of credit?

• Mortgage

• Credit Card

• Overdraft

• Pre-Paid Debit Card

Which of the following could be a SECURED loan?

• Auto loan

• Mortgage

• Student loan

• Overdraft

If the collateral for your secured loan can be taken away, why get a secured loan at all?

• Because they usually have a higher interest rate

• Banks give you an extra 90 days to make a missed payment

• Because they usually have a lower interest rate

• Banks typically don't charge interest for the first 12 months

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

• The institution trusts you more, so they lower the interest

• Banks are legally required to lower interest rates over time

• With each payment, principal increases; so interest lowers

• With each payment, principal decreases, so interest lowers