Unit 4 Credit Test

The average APR for a payday loan is closest to …

• 4%
• 14%
• 40%
• 400%

Which of the following statements comparing credit and debit cards is TRUE?

• Far more businesses accept credit cards than debit cards
• Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard
• Credit card companies provide you with a monthly statement, while debit cards do not
• With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

Which of the following is most likely to represent a fixed rate, secured debt?

• A student loan
• A credit card
• A prepaid debit card
• An auto loan

Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on an amortized loan?

• Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount
• The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly
• The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan
• Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash

When loans are amortized, monthly payments are _______ , while the amount of your monthly payment applied to interest ________ and the amount of your monthly payment applied to the principal _______ over time.

• Constant, Increases, Increases
• Constant, Decreases, Increases
• Variable, Decreases, Increases
• Variable, Decreases, Decreases

Which of the following is true about fixed and adjustable-rate mortgages?

• Fixed-rate mortgages have a constant payment every month, but an interest rate that increases throughout the term of the loan
• Fixed-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
• Adjustable-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
• The two mortgages work the same way but are called different names depending if they come from a bank or a credit union

What is an advantage of using a credit card?

• It will not affect your credit score or credit history
• Since it is tied directly to your checking account, it prevents you from spending money you do not have
• If you need to carry a balance, the interest rates are generally quite low (less than 5%)
• You can make an emergency purchase that you otherwise don’t have the money to pay for right now

A loan with a shorter term length will have __________ monthly payments, and you will pay __________ in total interest.

• higher, less
• higher, more
• lower, less
• lower, more

Select the statement below that accurately describes a characteristic of a credit card.

• You owe the same payment every month
• You must have money deposited into a checking account to use the credit card for purchases
• Making full payments on-time every month is the only way to avoid interest charges
• They do not charge interest

Which of the following statements is CORRECT about secured loans?

• They are a good choice to use for student loans
• If the borrower does not make payments, the lender can repossess the item
• In the event of default, the borrower loses nothing except for the down payment
• They usually have higher interest rates as compared with unsecured loans