Unit 4 (Credit) Exam Review

Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?

• Principal

• Term

• Interest rate

• APR

Each of the following represents an installment loan EXCEPT…

• Home mortgage

• Auto loan

• Student loan

• Credit card

Why might someone consider choosing a loan with the lowest monthly payment?

• Low payments fit better in their monthly budget

• Low payments indicate a low-interest rate

• Low payments eventually lead to lower total interest paid

• Low payments help you pay off your loan more quickly

The interest rate remains constant during the duration of the loan

• Installment Loans

• Fixed-Rate

• Revolving Credit

• Variable-Rate

• Secured Debt

Used to finance a specific purchase for a specific amount of time. Regular payments are made to pay the interest and the principal.

• Installment Loans

• Revolving Credit

• Secured Debt

• Unsecured Debt

• Fixed-Rate

The interest rate can change during the duration of the loan based on the prime rate or an index rate

• Fixed-Rate

• Revolving Credit

• Secured Debt

• Unsecured Debt

• Variable-Rate

An open line of credit that can be used for any purchases as long as you’re under the credit limit. Payment amounts vary each pay period based on the size of the debt.

• Installment Loans

• Revolving Credit

• Secured Debt

• Unsecured Debt

• Variable-Rate

Debt is not tied to a specific asset; there is no collateral that can be repossessed if the borrower defaults

• Installment Loans

• Revolving Credit

• Secured Debt

• Unsecured Debt

• Fixed-Rate

Debt is tied to a specific asset that can be used as collateral and repossessed if the borrower doesn’t make payments

• Installment Loans

• Revolving Credit

• Secured Debt

• Unsecured Debt

• Fixed-Rate

True or False: If you have a $48 balance on your credit card and stop using your credit card for purchases, you won’t ever have to pay interest again.

• True

• False