Types of Credit - Unit 4 Test Review

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

• All 3 cards are completely different
• Debit cards and prepaid debit cards are the same
• Debit cards and credit cards are the same
• All 3 cards are completely the same

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 principal ________ and the amount of your monthly payment applied to the interest _______ over time.

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

• 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

Which of these credit payback strategies would lead to the HIGHEST overall cost?

• Paying off your credit card bill in full every month
• Paying 20% of your credit card balance every month on time
• Making the minimum payment (3% of your credit card balance) every month on time
• Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

Sydney is about to go car shopping, and she has $4500 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 $30,000. If her top priority is having the lowest monthly payments possible, which advice should she follow?

• Put in $0 for your down payment, and choose a loan with a short term length
• Put in $2500 for your down payment, and choose a loan with a short term length
• Put in $3000 for your down payment, and choose a loan with a long term length

• Put in $4500 for your down payment, and choose a loan with a long term length

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

Credit card disclosure: "Your due date is at least 21 days after the end of the billing cycle. We will not charge you interest on new purchases provided that you have paid your previous balance in full by the due date each month." Identify the true statement.

• If you make the minimum payment on your card within the 21 day period, the credit card company will not charge you interest

• If you pay your previous balance in full after the due date, the credit card company will not charge you interest
• 21 days is an exceptionally long period without paying a credit card bill

• The 21 days after the end of the billing cycle is referred to as the grace period