Personal Finance- Credit Review

Why is it a good idea to pay more than the monthly amount due on an amortized loan?

• It reduces the overall interest paid over the life of the loan.

• It shortens the loan term.

• It helps build equity faster.

• All of the above.

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.

• Fixed; decreases; increases

• Variable; increases; decreases

• Fixed; increases; decreases

• Variable; decreases; increases

What is the cheapest way to pay back credit card purchases?

• Making minimum monthly payments.

• Paying the total balance in full every month.

• Ignoring the bills until they accumulate.

• Only paying the interest charges.

What habits lead to higher overall costs of credit card bills?

• Paying in full every month.

• Carrying a balance and paying only the minimum.

• Using credit cards for emergencies only.

• Having a low credit limit.

Reading through a credit card's Schumer Box, you see the APR for a specific card is set at 9.99% - 23.99%. Why is there a range of possible interest rates? How do you know what your interest rate will be?

• The range accounts for different credit scores; your rate depends on your creditworthiness.

• The range is arbitrary; the actual rate is fixed.

• The range is based on the applicant's age.

• Your interest rate is always the highest number in the range.

What is an advantage of using a credit card?

• Building credit history.

• Accumulating cash rewards.

• Emergency financial backup.

• All of the above.

• Recieve free financing as long as you pay it back in full each month

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

• Higher; more.

• Lower; more.

• Higher; less.

• Lower; less.

Joanne is considering pursuing one of two credit cards. Credit card "X" has no annual fee and charges an interest rate of 18.5%. Credit card "Y" has an annual fee of $75 but charges an interest rate of 13.5%. If Joanne is likely to have an average credit card balance of $2,500, which card should she choose? The lowest annual expenses Joanne could have with one of these two cards would be what?

• Credit card "X"; $462.50.

• Credit card "X"; $555.00.

• Credit card "Y"; $412.50.

• Credit card "Y"; $450.00.

Over the life of a loan, the payment to principal ________ and the portion to interest expense ________.

• Decreases; decreases.

• Increases; decreases.

• Decreases; increases.

• Increases; increases.

Describe how a credit card works.

• It allows you to borrow money up to a set limit and requires monthly repayments.

• It's a prepaid financial tool with no borrowing involved.

• It's a fixed-rate loan for large purchases.

• It's a type of investment account.