Cost of Credit and Types of Credit

What is a finance charge?

• The total cost of borrowing, including interest and fees

• The interest rate only

• The monthly payment

• The loan term.

How can borrowers minimize credit costs?

• By securing a lower interest rate and making extra payments

• By increasing the loan amount

• By extending the loan term

• By avoiding payments.

Where can you get a loan, and what to avoid?

• A) Banks; avoid high-cost options like payday loans

• B) Credit unions; avoid banks

• C) Online lenders; avoid credit unions

• D) Friends; avoid family.

What factors to consider when applying for credit?

• A) Affordability, item necessity, fees, and lender reputation

• B) Only affordability

• C) Only item necessity

• D) Only lender reputation

What is the difference between secured and unsecured loans?

• Secured loans require collateral; unsecured loans do not

• Unsecured loans require collateral; secured loans do not

• Both require collateral

• Neither require collateral.

Installment loans require ______ monthly payments.

• fixed

• variable

• no

• random

What are the characteristics of a mortgage?

• Secured by the home, with specific down payment and credit requirements

• Unsecured, no down payment required

• Secured by a car, no credit requirements

• Unsecured, with a down payment.

What are payday loans, and what are their pros and cons?

• Short-term, small amount, unsecured, high APR

• Long-term, large amount, secured, low APR

• Short-term, large amount, secured, high APR

• Long-term, small amount, unsecured, low APR

Pawn shop loans use ______ as collateral.

• pawned item

• car

• house

• credit card

What is a credit card and its features?

• Allows for purchases on credit with monthly payments, paying in full avoids interest

• Allows for purchases on credit with annual payments, paying in full incurs interest

• Allows for purchases on debit with monthly payments, paying in full avoids interest

• Allows for purchases on debit with annual payments, paying in full incurs interest