Understanding Loans and Credit

Liam is considering taking out a loan to buy a new car. What are the three main components of a loan he should be aware of?

• The principal, the interest rate, and the loan term

• The money you pay, the money the lender pays, and the principal

• The mortgage, the auto loan, and the small business loan

• The loan amount, the credit card payment, and the statement

Maya is considering taking out a loan to buy a new car. She learns that secured loans are considered less risky to the lender. Why is this the case?

• Lenders are allowed to conduct background checks for secured loans

• Lenders can take valuable collateral if you fail to repay your loan

• Lenders give secured loans all the time, so they're more comfortable doing them

• Lenders can check your credit score before giving a secured loan, which they can't do for an unsecured loan

Aria is looking to buy a new car and wants to secure a better loan deal. Having a good credit score, making a larger down payment, and finding a cosigner with good credit are all ways to…

• Decrease your principal

• Decrease your interest rate

• Increase your term

• Increase your total payments

Olivia is considering taking out a variable rate loan for her new car. Which statement about variable rate loans is NOT true?

• Typically starts with a lower interest rate than a fixed rate loan

• Is riskier to the borrower because the interest rate could increase substantially

• Is almost always a better option

• Can increase or decrease the interest rate over the course of the loan

Ava bought a new laptop on credit and made a down payment. What is the total cost of the laptop minus the down payment called?

• Principal

• Term

• Interest rate

• APR

Grace is planning to buy a new house and is considering different financing options. Which of the following represents an installment loan?

• Home mortgage

• Credit card

• Personal loan

• Payday loan

Liam is considering several financial actions. Which action would most likely decrease his net worth for at least the next 6 months?

• Use a loan to buy a brand new car

• Work 10 hours of overtime each week and put all extra earnings into a savings account

• Work 10 hours of overtime each week and use all extra earnings to pay down student loan debt

• Open 3 new credit cards but don’t spend any money on them

Avery has a credit card and is considering whether to pay off the entire balance each month. What is the primary advantage of doing so?

• You will incur only a small 'paid in full' fee

• You pay only a small amount of interest

• You avoid paying any interest and fees

• You have less of your credit limit available

Ava recently received her credit card statement and noticed a section labeled 'outstanding balance.' What does this term mean?

• The amount you paid in your minimum payment

• The amount you spent in total

• The amount you still owe after you have made your most recent payment

• The amount you still have available in your line of credit

Aria is trying to pay off her credit card debt, but she's only making the minimum payments each month. Why is it more difficult for her to get out of debt this way?

• Your entire minimum payment goes toward principal

• The majority of your minimum payment is going toward interest

• Your credit limit always resets

• You have a lot of spending power each month