Check-In #10 - Credit Basics

Choose the option that best completes this sentence: When using a credit card…

• you will pay interest whether or not you pay your bill every month.

• you are transferring money from your savings account directly to another party.

• you are getting a short-term loan to allow you to purchase an item now which you can pay for later.

• you always have the option to wait to make a payment because late payments don’t affect your credit.

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 is an example of credit?

• Getting a certificate of deposit (CD) from the bank

• Paying for college with money your parents helped save

• Splitting the cost of a meal with a friend

• Taking out a mortgage to buy a home

Which of the following is usually a secured debt?

• Student loan

• Auto loan

• Credit card

• Personal loan

Which of the following statements is TRUE?

• You can typically reduce your loan costs by finding the highest interest rate

• You can typically reduce your loan costs by finding the longest term

• You can typically reduce your loan costs by making a large down payment

• You can typically reduce your loan costs by making a small down payment

Which of the following statements is TRUE?

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

• To avoid appearing biased, a bank or other lender must offer the same loans to any borrower.

• Banks can pick both the interest rate and the borrowers they lend money to.

• Banks can pick the borrowers they lend money to, but must set the same interest rate for everyone.

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

• The payment amount 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 will not be allowed to pay more than the amount due every month

Mustapha needs a $3000 loan to buy a used car so he can take a job not accessible by public transportation. Which loan structure would result in the HIGHEST TOTAL COST?

• Make a $500 down payment, then pay $500 per month from his paychecks until the debt is paid off.

• Make a $1500 down payment, then pay $500 per month from his paychecks until the debt is paid off.

• Make a $500 down payment, then pay the $150 minimum monthly payments required until the debt is paid off.

• Don't make a down payment, but pay the $150 minimum monthly payments required until the debt is paid off.

Which of the following is a TRUE statement describing the benefits of an installment loan?

• An installment loan allows you to make one large purchase, even if you don’t have all the money for it up front

• An installment loan does not require a credit check, so they are easy to obtain

• An installment loan allows you to make many small purchases as you need them, as long as you’re under your credit limit

• An installment loan does not require monthly payments, so they can be paid back when the borrower is ready

Use the image to answer the question: Which row in the following table describes the most desirable interest rates for consumers?

• Row A in the image

• Row B in the image

• Row C in the image

• Row D in the image