Understanding Credit and Loans

If a person earns $50,000 a year, has total assets of $250,000 and liabilities of $140,000, their net worth is

• $50,000

• $110,000

• $160,000

• $250,000

A person has two credit cards with the same balance. Credit card A has an APR of 18% and credit card B has an APR of 12%. Their monthly budget includes $300 for credit card payments, and they want to pay a minimum of $100 on each. Which of the following is recommended?

• Pay $100 on card A and $200 on card B.

• Pay $200 on card A and $100 on card B.

• Pay $150 on each card.

• Pay $100 on each and leave the remaining funds in their checking account.

What factor can potentially contribute to a person securing a favorable interest rate on a loan?

• A high checking account balance.

• A good credit rating.

• A high income.

• A college degree.

A person can establish credit by

• Opening multiple bank accounts to build a strong financial history.

• Accumulating debt on credit cards from multiple lenders.

• Making timely payments on loans and bills to build a positive credit history.

• Avoiding all forms of borrowing to maintain a pristine credit record.

The person with a variable interest rate on a loan can potentially expect their payment to

• Fluctuate as interest rates change.

• Vary based on their monthly budget.

• Remain constant over the life of the loan.

• Decrease over the life of the loan.

Which of the following best describes the implications of taking out a loan for the maximum term allowed?

• It minimizes the total amount of interest paid over the life of the loan.

• It increases the monthly payments, making it easier to manage.

• It accelerates the repayment process, allowing room for a new loan.

• It extends the repayment period, resulting in higher overall interest costs.

Which of the following best describes how long information typically stays on a credit report?

• Information stays on a credit report for a maximum of one year.

• Information stays on a credit report indefinitely, regardless of the impact.

• Positive information stays on a credit report longer than negative information.

• Most negative information stays on a credit report for up to seven years.

What should a person consider before using a credit card for cash advances?

• Cash advances incur lower interest rates than regular purchases.

• Cash advances incur higher interest rates than regular purchases.

• Cash advances offer longer repayment options than regular purchases.

• Cash advances do not affect your credit score.

If a person makes too many late payments on a credit card, the credit card company may

• Reduce the interest rate to incentivize timely payments.

• Request immediate payment of the full balance on the account.

• Increase the credit limit to encourage responsible spending.

• Raise the interest rate, resulting in higher costs for the cardholder.

A person takes out a short-term loan in the amount of $1,000 over a 6-month period. The total of their monthly payments over this period is $1,070 because

• In addition to the principal, they incurred $70 in interest on the loan.

• They added a gratuity of $70 for the lender’s service.

• The $70 will be added to their emergency fund.

• In addition to the principal, they incurred $70 in taxes on the loan.