Understanding Loans and Credit

What are the three basic components of lines of credit?

• Principal, interest rate, and term

• Principal, interest rate, and collateral

• Interest rate, term, and credit score

• Principal, collateral, and credit score

Why are secured loans considered less risky to the lender?

• They have collateral backing them

• They have higher interest rates

• They are shorter in term

• They require a cosigner

What is one benefit of making a larger down payment on a loan?

• It can improve your loan terms

• It increases the interest rate

• It extends the loan term

• It requires a cosigner

Each of these statements describes a variable rate loan EXCEPT...

• The interest rate can change over time.

• Monthly payments may vary.

• The interest rate is fixed for the entire term.

• It can be beneficial if interest rates decrease.

What is the opposite of a variable interest rate?

• Fixed

• Revolving

• Installment

• Unsecured

A loan backed by collateral

• Unsecured Loan

• Secured Loan

A credit card is an example of a _________ loan.

• installment

• revolving

APR stands for...

• Always Pay Rate

• Annual Percentage Rate

• Annual Paper Rate

• Approximate Percentage Rate

Joel has a credit card with a $1000 credit limit. His outstanding balance is currently $800. What is the maximum amount he can now spend on this credit card? 

• 1000

• 800

• 200

• 1800

The best strategy when using a credit card is to pay the minimum payment each month.

• True

• False