Personal Financial Literacy: Intro to Credit

The details of any loan will include the following 3 components:

• The principal, the interest rate, and the loan term

• The money you pay, the money the lender pays, and the principal

• The mortgage, the auto loan, and the small business loan

• The loan amount, the credit card payment, and the statement

Why are secured loans considered less risky to the lender?

• Lenders are allowed to conduct background checks for secured loans

• Lenders can take valuable collateral if you fail to repay your loan

• Lenders give secured loans all the time, so they're more comfortable doing them

• Lenders can check your credit score before giving a secured loan, which they can't do for an unsecured loan

Having a good credit score, making a larger down payment, and finding a cosigner with good credit are all ways to…

• Decrease your principal

• Decrease your interest rate

• Increase your term

• Increase your total payments

Each of these statements describes a variable rate loan EXCEPT...

• Can increase or decrease the interest rate over the course of the loan

• Typically starts with a lower interest rate than a fixed rate loan

• Is riskier to the borrower because the interest rate could increase substantially

• Is almost always a better option

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

Which of these actions would most likely decrease a person’s net worth for at least the next 6 months?

• Use a loan to buy a brand new car

• Work 10 hours of overtime each week and put all extra earnings into a savings account

• Work 10 hours of overtime each week and use all extra earnings to pay down student loan debt

• Open 3 new credit cards but don’t spend any money on them

Match the following:

• Regular monthly payments made to the interest first, then the principal

• Revolving

• Interest rate can change during the length of the loan based on prime or an index rate

• Unsecured

• Open line of credit used for any purchase as long as it’s under the limit

• Installment

• Debt is tied to a specific asset that can be used as collateral and repossessed for nonpayment

• Variable

• Debt is NOT tied to a specific asset; there is no collateral that can be repossessed for nonpayment

• Secured

What type of credit is an AUTO LOAN?

• Installment

• Revolving

What type of credit is an MORTGAGE?

• Secured

• Unsecured