Types of Credit Bell Ringer 4

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

You’re debating whether to buy a trendy fall jacket that costs a whopping $200! You have it sitting in your online cart, and you see there’s a “Buy Now, Pay Later” option available for the jacket. Which best describes an example of how that would work?

• You pay the full $200 now, but they wait a month to send it to you, giving you the chance to cancel, penalty free, if you change your mind

• You pay $100 right now, you receive the jacket, and you owe $100 more a year later on the anniversary of your purchase date

• They ship you the jacket now, and you owe four $50 payments, once every 2 weeks, until the jacket is paid in full

• You reserve the jacket now, you pay as much or as little as you want in each payment, and when you eventually get to $200, they send you the jacket

A loan with a shorter term length will have __________ monthly payments, and you will pay __________ in total interest.

• higher, less

• higher, more

• lower, less

• lower, more

When loans are amortized, monthly payments are _______ , while the amount of your monthly payment applied to interest ________ and the amount of your monthly payment applied to the principal _______ over time.

• Constant, Increases, Increases

• Constant, Decreases, Increases

• Variable, Decreases, Increases

• Variable, Decreases, Decreases

Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on an amortized loan?

• Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount

• The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly

• The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan

• Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash