Unit 4 Review - Types of Credit

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 statements about the difference between credit and debit cards is accurate?

• Debit cards are accepted by more businesses than credit cards

• Debit cards borrow money from Visa or Mastercard, while credit cards directly deduct money from your bank account

• Debit cards provide you with a monthly statement, while credit cards do not

• With credit cards, you're borrowing money that you need to repay later, but with debit cards, you're spending your own money immediately

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 the following is most likely to represent an unsecured, variable rate debt?

• A mortgage

• A payday loan

• A car lease

• A personal 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

Which of the following is not a reason why it is beneficial to make additional payments towards the principal amount on an amortized loan?

• Additional payments will decrease the total amount of interest paid on the loan

• Additional payments will reduce the principal amount, thus accelerating the debt repayment

• Additional payments will be applied to the interest, reducing the total cost of the loan

If you are struggling with your mortgage payments and are on a strict budget, which of the following suggestions is the LEAST helpful?

• Consider getting an additional job or working extra hours to increase your income

• Cease payments on some of your debts to concentrate on the most significant or costly ones

• Keep up with all payments and contact your lenders to discuss the possibility of lower monthly payments, reduced interest rates, or extended terms

• Investigate if a free or non-profit debt counseling service could be beneficial

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

• Find an extra source of income by taking a second job, working longer hours, or borrowing from family if they can afford to help
• Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control
• Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms
• Explore whether a free or non-profit credit counseling service could help

Mia took a loan to buy a new car. When her car loan is amortized, her monthly payments are _______ , while the amount of her monthly payment applied to the principal ________ and the amount of her monthly payment applied to interest _______ over time.

• Constant, Increases, Decreases

• Constant, Decreases, Increases

• Variable, Decreases, Increases

• Variable, Increases, Decreases

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, Decreases

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