Credit Terms: Part I (2025)

What does the term "principal" refer to in a loan?

• The person who lends the money

• The original amount of money borrowed

• The interest rate on the loan

• The monthly payment amount

What is the difference between secured and unsecured credit?

• Secured credit has a lower interest rate

• Unsecured credit is backed by collateral

• Secured credit is backed by collateral

• Unsecured credit is only available to wealthy individuals

What is an overdraft?

• A type of savings account

• An extension of credit when there's not enough money in an account

• A fee charged for using a credit card

• A discount on a purchase

What is the main difference between a loan and a credit card?

• Loans are only for large purchases

• Credit cards have higher interest rates

• Loans provide a lump sum of money while credit cards allow for ongoing borrowing

• Loans are easier to obtain than credit cards

What is interest?

• The amount of money you borrow

• The cost of borrowing money

• The length of time it takes to repay a loan

• The fee for opening a credit card account

What does "revolving credit" mean?

• You have to repay the full balance each month

• You can continue to add purchases to an outstanding balance

• You can only use the credit for a specific purchase

• The credit automatically renews each year

What is an installment credit?

• A loan where you pay a fixed amount each month

• A credit card with a low interest rate

• A way to pay for online purchases

• A type of investment account

Why is it important to understand interest rates?

• It helps you budget for monthly payments

• It can save you money over the life of a loan

• It allows you to compare different credit options

• All of the above

What should you consider before taking out a loan?

• The interest rate

• The repayment terms

• Whether you can afford the monthly payments

• All of the above

What is a co-signer on a loan?

• Someone who helps you negotiate a lower interest rate

• Someone who shares responsibility for repaying the loan

• Someone who provides financial advice

• Someone who works at the bank