Understanding Credit and Loans

What is the principal? What is the interest?

• The principal is the original amount borrowed; interest is the cost of borrowing.

• The principal is the interest rate; interest is the total amount borrowed.

• The principal is the monthly payment; interest is the loan term.

• The principal is the total amount owed; interest is the original amount borrowed.

Terry borrowed $10,000 from TD Bank to start a business. After 3 years he hasn’t made a payment yet and now owes $11,100. What amount is his principal? What amount is his interest?

• Principal: $10,000; Interest: $1,100

• Principal: $11,100; Interest: $1,000

• Principal: $9,000; Interest: $2,100

• Principal: $10,000; Interest: $2,100

What types of businesses do people prefer using credit over cash or debit?

• Online shopping and travel

• Grocery stores and gas stations

• Local markets and street vendors

• Fast food and coffee shops

Besides convenience, what are two other reasons credit is useful?

• Building credit history and earning rewards

• Avoiding taxes and hiding expenses

• Increasing debt and reducing savings

• Limiting spending and avoiding interest

What does the term credit limit mean?

• The maximum amount you can borrow on a credit card

• The minimum payment required each month

• The interest rate charged on a loan

• The total amount of debt you owe

What does the term credit score mean?

• A numerical representation of your creditworthiness

• The total amount of credit you have available

• The interest rate on your credit card

• The number of credit cards you own

What form of credit will help you pay for college?

• Student loans

• Credit cards

• Personal loans

• Mortgages

Are mortgages a good idea because they allow you to buy a home and build equity?

• Yes, they allow you to buy a home and build equity.

• No, they increase your debt and lower your credit score.

• Yes, they are short-term loans with low interest.

• No, they are only for investment properties.

List a credit score that would be considered either fair or poor.

• 750

• 680

• 600

• 820

What are some ways young people can get credit?

• Apply for a mortgage

• Use a secured credit card

• Avoid all credit cards

• Only use cash for purchases