Types of Credit Unit Test

Shira is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true?

• All 3 cards are completely different

• Debit cards and prepaid debit cards are the same

• Debit cards and credit cards are the same

• All 3 cards are completely the same

The average APR for a payday loan is closest to ...

• 4%

• 14%

• 400%

Which of the following statements comparing credit and debit cards is TRUE?

• Far more businesses accept credit cards than debit cards

• Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard

• Credit card companies provide you with a monthly statement, while debit cards do not

• With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

Which of the following is most likely to represent a fixed rate, secured debt?

• A student loan

• A credit card

• A prepaid debit card

• An auto loan

Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on an amortized loan?

• Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount

• The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly

• The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan

• Amortized loans typically have much higher interest rates than credit cards, so

If you are having trouble making auto loan payments and are really following a tight budget, which recommendation below represents the WORST advice?

• Find an extra source of income by taking a second job, working longer hours, or borrowing from family if they can afford to help

• Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control

• Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms

• Explore whether a free or non-profit credit counseling service could help

When loans are amortized, monthly payments are (a)   , while the amount of your monthly payment applied to interest (b)   and the amount of your monthly payment applied to the principal (c)   over time.

• Constant,
• Increases
• Decreases

Which of the following is true about fixed and adjustable-rate mortgages?

• Fixed-rate mortgages have a constant payment every month, but an interest rate that increases throughout the term of the loan

• Fixed-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions

• Adjustable-rate mortgages have a fixed rate for a few years, after which time the interest rate fluctuates according to the market.

• The two mortgages work the same way but are called different names.

Which of these credit payback strategies would lead to the HIGHEST overall cost?

• Paying off your credit card bill in full every month

• Paying 20% of your credit card balance every month on time

• Making the minimum payment (3% of your credit card balance) every month on time

• Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

Denise took out a payday loan for $300 in August. By February of next year, she was able to pay back the loan, but she spent a total of $750 doing so. What is the most likely story of how this happened?

• Upfront, Denise knew there would be $450 of fees attached to the loan, but she took out the loan anyway

• Payday loans must be paid in full within two weeks, and if not, the only option is to renew the loan for a high penalty fee, which she did approximately 12 times