Quiz 4: Types of Credit

Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?

• Principal

• Term

• Interest rate

• APR

Each of the following represents an installment loan EXCEPT...

• Home mortgage

• Auto loan

• Student loan

• Credit card

Felix opens a credit card with no annual fee, so he assumes that using the credit card regularly will be absolutely free for the next two years while he finishes grad school. Why is his assumption incorrect?

• Unless he pays the whole bill every month, he will pay interest according to his APR

• He will automatically pay penalty fees if he uses his credit card for more than 3 consecutive months

• If his grace period is any longer than 10 days, he will have to pay fees

• He will need to pay a separate student fee because he is still in grad school

Which statement best describes a Schumer box?

• The final calculation of how much you owe on your credit card bill each month

• A standardized way of presenting the key terms of your credit card agreement

• A legal document stating that you’re behind on your credit card payments

• The outstanding balance on your credit card once you’ve made your recent payment

If your credit card limit is $800 and your outstanding balance is $725, what is the largest amount you can charge on that card in the upcoming month?

• $0

• $75

• $725

• $800

As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?

• The interest portion will grow

• The interest portion will shrink

• The interest portion will stay the same

• The interest portion will sometimes grow and sometimes shrink

It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?

• Substantially less than $396

• Slightly less than $396

• Exactly $396

• Slightly more than $396

Antonio has $4000 saved to use for a down payment, and he’s about to buy a car that costs $29,000. How much would you expect his loan principal to be?

• $4000

• $25,000

• $33,000

• $29,000 x his interest rate

If you were offered two auto loan options with the same principal and interest rate, but one was a 48-month loan and one was a 72-month loan, which outcome below will reflect the impact of that difference in term?

• The 48-month loan will cost less money overall

• The 48-month loan will have lower monthly costs

• The 48-month loan will take longer to pay off

• The 48-month loan will always cost more money overall

What causes the total amount of interest paid on a mortgage to be so much higher than on other types of debts?

• The APR on a mortgage is typically between 20-30%, which is higher than for other types of debt

• The principal on a mortgage is high and the term is long

• Borrowers typically delay making mortgage payments because their home cannot be repossessed for nonpayment

• Homeownership is not very common in the US, so mortgages are priced high because demand is so low