Consumer U2 Test Review

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 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

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 description best fits what is meant when someone talks about their credit card APR?

• The total amount of purchases they charge on an annual basis

• The remaining balance left on a credit card once the minimum monthly payment is made

• The average credit score each person is assigned based on their payment history

• The percent the credit card company charges you for the benefit of receiving a temporary loan from them

The following high school seniors each bought $1500 of stuff to bring to college with them in the fall. Each one used a credit card with similar terms to make their purchases. Which student will end up paying the MOST for their purchases.

• Robert, who makes $300 payments per month until the debit is $0

• Stephan, who pays the first $1000 using graduation money and then pays $250 per month until the debt is $0

• Nelson, who makes the minimum monthly payment each month until the debt is $0

• Joan, who can't afford to make any payments and plans to put off the debt until she gets a summer job next year

Isaac and his family want to take a trip to Disney World. They start charging all their monthly expenses on a credit card that gives them airline miles, in hopes of earning one or two free flights by next summer. In the month of February alone, they charge $2500 on the card. When the bill comes, Isaac pays the full balance. Which figure best estimates the interest he paid, given that his card has a 12% APR?

• $0

• $25

• $300

• $2525

Stephanie's credit card has a limit of $10,000. She charges $3000 in car repairs and makes the minimum monthly payment until she's debt free.

Based on the sentences above, each of the following statements is true, EXCEPT:

• Stephanie will be making credit card payments for many years to pay off this debt

• Stephanie could still charge more on her card if she needed or wanted to.

• Stephanie has ruined her credit score by using her credit card for such a large purchase.

• Stephanie will owe less total money if she increases each monthly payment by $50.

Joyce sees a credit card offer, advertising 0% APR. Which of the following is least likely true?

• 0% offer is introductory and lasts only 6 months.

• 0% offer is only available to those with high credit scores.

• 0% offer is good on new purchases only, not cash advances.

• 0% offer lasts indefinitely, as long as you always make at least your minimum monthly payment.