Types of Credit - Vocabulary #3

What is a Fixed-Rate Mortgage?

• A mortgage with a fixed interest rate for the entire term of the loan

• A loan with a variable interest rate

• A short-term loan with no interest

• A loan with decreasing interest rates over time

Answer explanation

A Fixed-Rate Mortgage is defined as a mortgage with a fixed interest rate for the entire term of the loan, ensuring consistent monthly payments and stability for borrowers.

Tags

CCSS.L.11-12.4C

CCSS.L.6.4C

CCSS.L.7.4C

CCSS.L.8.4C

CCSS.L.9-10.4C

What does the term "Grace Period" refer to in credit terms?

• The time between a statement date and payment due date without accruing interest

• The period when interest rates are highest

• The time when late fees are applied

• The duration of a loan term

Answer explanation

The term "Grace Period" refers to the time between a statement date and payment due date during which no interest is accrued on the balance, allowing consumers to pay without incurring extra charges.

Tags

CCSS.L.11-12.4C

CCSS.L.6.4C

CCSS.L.7.4C

CCSS.L.8.4C

CCSS.L.9-10.4C

What is an Installment Loan?

• A loan for a specific purchase with regular payments of interest and principal

• A loan with no fixed repayment schedule

• A loan that requires full payment at the end of the term

• A loan with interest-only payments

Answer explanation

An installment loan is specifically designed for a purchase, requiring regular payments that include both interest and principal, making it distinct from loans with no fixed schedule or those requiring full payment at the end.

Tags

CCSS.L.11-12.4C

CCSS.L.6.4C

CCSS.L.7.4C

CCSS.L.8.4C

CCSS.L.9-10.4C

How is Interest Rate usually expressed?

• As a percent of the amount borrowed

• As a fixed dollar amount

• As a monthly fee

• As a yearly subscription

Answer explanation

Interest rates are typically expressed as a percent of the amount borrowed, indicating the cost of borrowing relative to the loan amount. This allows borrowers to understand the financial implications of their loans.

Tags

CCSS.RI.11-12.4

CCSS.RI.7.4

CCSS.RI.8.4

CCSS.RI.9-10.4

CCSS.RI.9-10.4

What is an Introductory APR?

• A low rate charged during the introductory period of a credit account

• A high rate charged after the introductory period

• A fixed rate for the entire loan term

• A rate that decreases over time

Answer explanation

An Introductory APR is a low rate charged during the initial period of a credit account, making it more attractive for new customers. This option is correct as it highlights the temporary nature of the low rate.

Tags

CCSS.RI.11-12.4

CCSS.RI.7.4

CCSS.RI.8.4

CCSS.RI.9-10.4

CCSS.RI.9-10.4

What is a Late Payment Fee?

• A fee charged if your payment is received after the due date

• A fee for paying early

• A fee for paying the exact amount

• A fee for paying in cash

Answer explanation

A Late Payment Fee is specifically charged when a payment is received after the due date, making the first answer choice correct. The other options do not accurately describe this type of fee.

Tags

CCSS.L.11-12.4C

CCSS.L.6.4C

CCSS.L.7.4C

CCSS.L.8.4C

CCSS.L.9-10.4C

What is a Loan?

• An agreement where you are credited with a fixed amount of money for a fixed period

• A gift of money with no repayment

• A payment plan for services

• A subscription service

Answer explanation

A loan is defined as an agreement where a borrower is credited a specific amount of money for a predetermined period, which must be repaid, distinguishing it from gifts or payment plans.

Tags

CCSS.RI.11-12.4

CCSS.RI.7.4

CCSS.RI.8.4

CCSS.RI.9-10.4

CCSS.RI.9-10.4

What is the Minimum Payment on a credit card bill?

• The smallest amount a credit card holder must pay during a billing cycle

• The full balance of the credit card

• The interest amount only

• The late fee amount

Answer explanation

The minimum payment on a credit card bill is the smallest amount a credit card holder must pay during a billing cycle to avoid penalties. It is not the full balance, interest, or late fee.

Tags

CCSS.RI.11-12.4

CCSS.RI.7.4

CCSS.RI.8.4

CCSS.RI.9-10.4

CCSS.RI.9-10.4

What is a Penalty APR?

• A lower interest rate for early payments

• A higher interest rate triggered by being late with or missing a credit card payment

• A fixed interest rate for all credit card users

• A reward program for frequent credit card use

Answer explanation

A Penalty APR is a higher interest rate that is applied when a credit card payment is late or missed, making it more expensive to carry a balance. This option correctly identifies the consequence of late payments.

Tags

CCSS.L.11-12.4C

CCSS.L.6.4C

CCSS.L.7.4C

CCSS.L.8.4C

CCSS.L.9-10.4C

What is a Balance Transfer?

• Moving debt from one credit card to another, usually to take advantage of a lower interest rate

• Paying off a credit card balance in full

• Transferring money from a savings account to a checking account

• Switching from a fixed-rate mortgage to a variable-rate mortgage

Answer explanation

A balance transfer involves moving debt from one credit card to another, typically to benefit from a lower interest rate, making it a strategic financial move to save on interest payments.

Tags

CCSS.RI.11-12.4

CCSS.RI.7.4

CCSS.RI.8.4

CCSS.RI.9-10.4

CCSS.RI.9-10.4