Chapter 4 Lesson 2 Sources and Types of Credit

What is a revolving credit account?

• A type of loan that requires collateral.

• A credit account with a limit that allows multiple purchases as long as the limit is not exceeded.

• A loan that is paid off in fixed monthly installments.

• A loan used specifically for buying a house.

What is the main difference between secured and unsecured loans?

• Secured loans have lower interest rates than unsecured loans.

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

• Unsecured loans are only available from banks.

• Unsecured loans require a co-signer.

Which of the following is a potential risk of taking out a home equity loan?

• The interest rates are always fixed.

• You might lose your home if you default on the loan.

• The loan amount is always small.

• It is only available for new homeowners.

What is a common consequence of taking out a student loan?

• Immediate repayment is required after graduation.

• It can lead to financial difficulties if not fully understood.

• It is only available for graduate students.

• It must be repaid within 5 years.

Why are payday loans considered predatory?

• They offer low-interest rates.

• They have high interest rates and fees that trap borrowers in debt.

• They are only available to people with excellent credit.

• They require a long-term commitment.

What is a characteristic of an auto loan?

• It is a type of revolving credit.

• It is an installment credit with fixed monthly payments.

• It requires no down payment.

• It is only available for used cars.

What is the main disadvantage of using a credit card?

• It requires collateral.

• It can lead to accumulating debt if not managed properly.

• It is only accepted in certain stores.

• It has a fixed repayment term.

What is the typical duration of a home mortgage?

• 5–10 years

• 15–30 years

• 1–5 years

• 10–15 years

Which of the following is true about personal loans?

• They always require collateral.

• They often have higher interest rates and fees.

• They are only used for buying homes.

• They are interest-free.

What is a common financial impact of student loans on millennials?

• They encourage early retirement.

• They delay major life events like buying a home or starting a family.

• They lead to immediate wealth accumulation.

• They are easily paid off within a year.