Which best describes the difference between secured and unsecured loans?

• Secured loans require collateral, while unsecured loans do not.

• Secured loans have a higher interest rate than unsecured loans.

• Secured loans are only available to individuals with good credit, while unsecured loans are available to anyone.

• Secured loans do not require a credit check, but unsecured loans do.

Answer explanation

Secured loans require collateral, such as property or assets, to back the loan, reducing risk for lenders. Unsecured loans do not require collateral, making them riskier for lenders and often resulting in higher interest rates.

Elliott renovates his home using a loan that requires him to sign over the title to his car if he doesn't pay as promised. What type of loan does Elliott have?

• Unsecured loan

• Auto loan

• Secured loan

• Payday loan

Answer explanation

Elliott has a secured loan because it requires collateral—in this case, the title to his car. If he fails to repay, the lender can take the car, which is characteristic of secured loans.

Which type of financial aid is considered free money?

• Loans

• Grants

• Work-study

• Scholarships

Answer explanation

Grants are considered free money because they do not need to be repaid, unlike loans. Scholarships also provide free money, but the correct answer here is grants, as they are specifically designed to assist students financially.

What is the main benefit of taking out a federal student loan instead of a private loan?

• Federal student loans offer lower interest rates and more flexible repayment options.

• Federal student loans do not need to be repaid after graduation.

• Federal student loans offer more money than private loans.

• You will have a higher interest rate for a federal student loan.

Answer explanation

The main benefit of federal student loans is that they typically offer lower interest rates and more flexible repayment options compared to private loans, making them a more manageable choice for borrowers.

When do you need to apply for the Free Application for Federal Student Aid (FAFSA)?

• The year before college and every year you attend.

• Once, after you have been accepted into college.

• Once, after you have completed your first semester.

• First grade.

Answer explanation

You need to apply for the FAFSA the year before you start college and continue to apply every year you attend. This ensures you receive financial aid for each academic year.

What is the best way to stay out of debt?

• Continuously take out personal loans to cover expenses.

• Rely on credit cards for all of your purchases and pay them off at the end of the month.

• Spend only what you can afford and avoid using credit cards for unnecessary purchases.

• Borrow money from friends and family whenever you need it.

Answer explanation

The best way to stay out of debt is to spend only what you can afford and avoid unnecessary credit card purchases. This approach helps maintain financial stability and prevents accumulating debt.

Which of the following types of credit typically has the LOWEST interest rate?

• Payday Loan

• Auto Loan

• Buy Now, Pay Later

• Credit Cards

• Mortgage

Answer explanation

Buy Now, Pay Later typically has the lowest interest rate compared to other options like payday loans, credit cards, and mortgages, which often carry higher rates due to their risk and repayment terms.

All of the following are ways to build your credit EXCEPT?

• Use a co-signer

• Become an authorized user

• Get credit for the bills you pay

• Practice good credit habits

• Use cash or debit and avoid credit

Answer explanation

Using cash or debit and avoiding credit does not help build your credit history. The other options, like using a co-signer or becoming an authorized user, actively contribute to improving your credit score.

The average APR for a payday loan is closest to …

• 4%

• 14%

• 40%

• 400%

Answer explanation

The average APR for payday loans is extremely high, often around 400%. This reflects the short-term nature and high fees associated with these loans, making 400% the closest choice.

What is a "down payment" in the context of auto loans?

• Monthly fee charged by the dealership for maintenance.

• A portion of the vehicle's purchase price paid upfront.

• Additional charge for customizing the vehicle's features.

• Refundable deposit made to secure the loan.

• A percentage of the total loan paid in addition to the purchase price.

Answer explanation

A down payment is a portion of the vehicle's purchase price paid upfront. It reduces the amount financed through the auto loan, making monthly payments lower.