Unit 5 Study Guide

A credit card offer comes in the mail with the bold print "0% A.P.R. for New Accounts." Which important piece of information should you find before thinking about signing up?

• Can I get two or more cards with this offer?

• Can I pay my credit card bill online?

• What is the A.P.R. after the introductory period?

• What kind of designs can I get on my card?

Reading through a credit card disclosure (aka the Schumer Box), you see the A.P.R. for a specific card is set at 9.99% - 23.99%. From the statements below, which is a correct?

• When given a range of A.P.R.s like this, you can assume most cardholders pay the lowest rate listed

• One of the primary factors determining your card's A.P.R. is your credit score

• With credit card A.P.R.s, cardholders like higher A.P.R.s because they earn more

• The A.P.R. on credit cards is usually fixed so they won't be adjusted as long as you are a cardholder

Which of these credit card payback strategies would result in your paying the HIGHEST amount of interest?

• Paying 20% of your credit card balance every month on time

• Paying off your credit card bill in full every month

• 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

BestBank's Visa credit card discloses an A.P.R. of "Prime Rate + 5.74% to Prime Rate + 22.74%." If the Prime Rate increases from 3.25% to 4.25%, what impact would this have on A.P.Rs for cardholders?

• No change since credit card A.P.Rs don't change as long as your account is open

• Increase in A.P.R by 1%

• Decrease in A.P.R. by 1%

• Increase in A.P.R. by 22.74%

All of the financial products listed below will help you build credit history except

• Secured credit card

• Debit card

• Home mortgage

• Credit card

Choose the correct statement from the list below about credit cards.

• They can help you establish a credit history

• Since they are tied directly to your checking account, they prevent 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%)

• As long as you make the minimum payments it's like getting a short-term interest free 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.

Choose the option that BEST completes this sentence: Personal loans are called "personal loans" because...

• you apply for them in-person, at your own bank branch or at a competing branch (if they offer better rates).

• you apply for them in-person or online, but whether you are given the loan depends on your personal credit score.

• they are lent based on your personal credit history rather than secured by an asset like a house or car.

• they are given to someone based on their personal familiarity with their banker.

Amy and Chuck each buy a house in the same neighborhood for $250,000. Amy's monthly mortgage payment is $400 more per month than Chuck's. Which of the following statements would explain the difference?

• Amy chose a shorter term for her mortgage, so her monthly payments are higher

• Chuck has a lower credit score, so his interest payments are also lower

• Amy made a larger down payment, so her monthly payments are also larger

• Chuck's interest rate is higher, so his monthly payment due is also lower

Which statement below BEST describes how student loans should be used responsibly during college?

• They can only legally cover the costs of tuition, room, and board.

• In addition to tuition, room, and board, you can use them to pay other costs of attendance such as books, fees, and transportation.

• You can use your student loans to pay for necessities OR to buy anything sold on campus, but you can't use them for off-campus purchases.

• Because student loans have such low interest rates, you can use them for large purchases including vacations and car payments while in college.