TOPIC 4 Test (Credit) P1

1. The details of any loan will include the following 3 components

• a. The principal, the interest rate, and the loan term
• b. The money you pay, the money the lender pays, and the principal
• c. The mortgage, the auto loan, and the small business loan,
• d. The loan amount, the credit card payment, and the statement

2. Having a good credit score, making a larger down payment, and finding a cosigner with good credit are all ways to…

• a. Decrease your principal
• b. Decrease your interest rate
• c. Increase your term
• d. Increase your total payments

3. Which best describes how a credit card works?

• a. The credit card company extends you a line of credit. You then pay a small percentage of the cost of those purchases in one annual payment.
• b. The credit card company extends you a line of credit. You purchase "stuff" and the purchase gets directly paid with funds in your checking account.
• c. The credit card company extends you a line of credit. This is free money that you can use to purchase the "stuff" that you need.
• d. The credit card company extends you a line of credit. You purchase "stuff" and then have the choice to pay the balance in full or a minimum payment each month.

4. What is an outstanding balance?

• a. The amount you paid in your minimum payment
• b. The amount you spent in total
• c. The amount you still owe after you have made your most recent payment
• d. The amount you still have in your life of credit

5. Which of the following statements about payday loans is TRUE?

• a. Payday loans get borrowers into a sometimes inescapable cycle of borrowing money because of the high interest rates and fees
• b. To qualify for a payday loan you must have a checking account and excellent credit score
• c. Payday loans usually have low-interest rates
• d. Payday loans do not have any additional fees like other types of unsecured loans

6. If you’re using the Snowball Method, which debt do you focus on first after you’ve made all of your minimum payments?

• a. Highest balance
• b. Lowest interest rate
• c. Lowest balance
• d. Highest interest rate

7. If you’re using the High Rate Method, which debt do you focus on first after you’ve made all of your minimum payments?

• a. Lowest interest rate
• b. Highest balance
• c. Lowest balance
• d. Highest interest rate

8. Why do lenders look at credit reports?

• a. To determine the size of your household
• b. To provide them with details about your savings account
• c. To decide whether you are a qualified or risky candidate for credit
• d. To edit your credit score

9. A fully amortized payment is split into which two components?

• a. The principal and the payment
• b. The principal and the interest
• c. The loan term and the interest
• d. The interest rate and the total interest

10. Why are secured loans considered less risky to the lender?

• a. Lenders are allowed to conduct background checks for secured loans
• b. Lenders can take valuable collateral if you fail to repay your loan
• c. Lenders give secured loans all the time, so they're more comfortable doing them
• d. Lenders can check your credit score before giving a secured loan, which they can't do for an unsecured loan