Personal Finance Course - Unit Six

What is the relationship between interest rate and the total cost of an item bought on credit?

• A) Higher interest rates mean lower total cost

• B) Interest rates have no effect on the total cost

• C) Lower interest rates mean higher total cost

• D) Higher interest rates mean higher total cost

What does the principal in a loan refer to?

• A) The total interest paid over the life of the loan

• B) The initial amount of money borrowed

• C) The fees charged for managing the loan

• D) The final payment made to clear the debt

What is the basic pattern followed by all types of credit mentioned in the text?

• Save now and buy later

• Buy what you want now and pay for it later

• Borrow only what you can pay back immediately

• Use cash instead of credit

Which type of credit usually has the highest rate of interest among the forms of credit?

• Mortgage loans

• Personal loans

• Credit cards

• Car loans

What does a credit score summarize?

• Your total amount of debt.

• Your financial behavior and credit history.

• Your annual income.

• The types of credit cards you own.

What are payday loans best known for?

• Long-term financing

• High interest and short-term nature

• Buying vehicles

• No specific purpose

What type of loan is typically issued by banks, credit unions, and auto dealers?

• Mortgage Loan

• Installment Loan

• Revolving Credit

• Payday Loan

Which of the following is a characteristic of an installment loan?

• High interest rates similar to credit cards

• Short-term borrowing options

• Fixed monthly payments based on an amortization schedule

• No specific purchase purpose

Installment loans are usually used for:

• Daily expenses

• Small personal items

• Large purchases such as cars and appliances

• Emergency financial needs

How does the interest rate of an installment loan generally compare to that of a credit card?

• Higher

• Lower

• The same

• Variable