Types of Credit - Unit Test

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

• 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

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

• An auto loan

• A credit card

3. 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?

• The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan

• The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly

4. If you are having trouble making auto loan payments and are really following a tight budget, which recommendation below represents the WORST advice?

• Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms

• Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control

5. 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, Decreases, Increases

• Constant, Increases, Increases

6. Taylor is about to go car shopping, and she has $5000 saved that she can use for a down payment while still having extra cash in her emergency fund. She expects the exact model car she’s looking for to cost $35,000. If her top priority is having the lowest monthly payments possible, which advice should she follow?

• Put in $2500 for your down payment, and choose a loan with a short term length

• Put in $5000 for your down payment, and choose a loan with a long term length

7. Shira is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true?

• Debit cards and credit cards are the same

• All 3 cards are completely different