Credit Quiz

An item offered to a bank/lender that could be kept if payments are not made is called...

• collateral

• unsecured

• credit card

• Schumer Box

In an amortized loan, each payment is made up of:

• interest and credit score

• principal and the loan term

• interest and the loan term

• principal and interest

Which of the following are parts of a loan? (Select ALL that apply)

• term

• interest rate

• credit score

• principal

Answer explanation

The 3 parts of a loan are:

-Principal (the amount you are borrowing)

-Interest rate (the cost of borrowing)

-Term (the amount of time you have to pay it all back)

Amortization means that monthly payments will...

• increase each month

• decrease each month

• change from month to month

• stay the same

Offer 1: $9,000 loan, 2% interest, 3 years

Offer 2: $9,000 loan, 2% interest, 6 years

If you chose OFFER 2, what would be the benefit?

• Your monthly payments would be higher

• Your monthly payments would be lower

• You would pay less overall

• You would be borrowing less money

Answer explanation

Offer 1: $9,000 loan, 2% interest, 3 years

Offer 2: $9,000 loan, 2% interest, 6 years

These loans are the same except for the years. When you extend a loan for a LONGER amount of time, your monthly payments DECREASE.

However, you end up paying MORE interest and MORE overall.

Offer 1: $9,000 loan, 2% interest, 3 years

Offer 2: $9,000 loan, 2% interest, 6 years

If you chose OFFER 1, what would be the benefit?

• Your monthly payments would be higher

• Your monthly payments would be lower

• You would pay less overall

• You would be borrowing less money

Answer explanation

Offer 1: $9,000 loan, 2% interest, 3 years

Offer 2: $9,000 loan, 2% interest, 6 years

These loans are the same except for the years. The shorter your term length (the number of years), the HIGHER your monthly payments will be.

However, you end up paying LESS interest and LESS overall.

This was created to make it easy to compare credit card offers:

• Credit Card Statement

• Mortgage

• Schumer Box

• Credit Report

Answer explanation

A Schumer Box displays credit card offers in the same way to make it easy to compare.

In an amortized loan...

• the amount going toward principal decreases and the amount going toward interest increases

• the amount going toward principal increases and the amount going toward interest decreases

• the amounts going toward principal and interest stay the same

• the amounts going toward principal and interest both decrease

Answer explanation

In an amortized loan:

-the amount going toward the principal INCREASES

-the amount going toward interest DECREASES (because you owe less)

When you combine multiple loans into one loan to simplify payments, this is called...

• refinancing

• amortization

• consolidation

• collateral

Answer explanation

When you combine multiple loans into one loan, this is referred to as CONSOLIDATION.

Which of the following is NOT an effective strategy for "haggling" when buying a car?

• Tell them the maximum amount you can afford

• Shop multiple dealerships

• Worry about your budget, not theirs

• Do your research

Answer explanation

If you tell them the maximum amount that you can afford, they will try their best to sell you a car at that amount so that they can earn more money.