Credit Knowledge Quiz

Avery received a bill for her electricity usage. Which of the following is an example of service credit?

• Mastercard bill

• Student loan

• Electric bill

• Adjustable rate mortgage

Mia wants to buy a new car and needs to borrow money for it. Which type of credit should she obtain so that she can repay the loan in equal payments over time?

• Service credit

• Installment credit

• Revolving credit

• Line of credit

The costs of using credit, including interest, late charges, and other fees is called _______.

• Principal

• Transaction fees

• Finance charges

• Liabilities

How does paying extra principal on an installment loan benefit the borrower?

• It decreases the interest rate on the loan.

• It lengthens the amount of time needed to repay the loan.

• It reduces the total amount of interest paid over the life of the loan.

• It allows the borrower to borrow more money at a lower interest rate.

David is considering buying a new home and is trying to decide between a fixed rate and an adjustable rate mortgage. What is the difference between the two?

• A fixed rate mortgage is always cheaper than an adjustable rate mortgage.

• A fixed rate mortgage has a prepayment penalty, whereas an adjustable rate mortgage does not.

• A fixed rate remains the same for the length of the loan, whereas an adjustable rate changes periodically.

• A fixed rate mortgage takes longer to repay than an adjustable rate mortgage.

Aiden is considering refinancing his mortgage. What are the benefits he might gain from this decision?

• He can tap into home equity to pay for another expense.

• He can obtain a lower interest rate.

• He can reduce the term of the loan.

• All of the above

What is the difference between secured and unsecured loans?

• A secured loan offers more security and consumer protection for the borrower, whereas an unsecured loan is riskier for the borrower.

• A secured loan has a fixed interest rate, whereas an unsecured loan has an adjustable interest rate.

• A secured loan is used to pay for college and personal expenses, whereas an unsecured loan is used for purchasing a house or car.

• A secured loan is backed by collateral that must be given up if the loan is not repaid, whereas an unsecured loan is not.

Luna has two existing loans and wants to combine them into a single new loan to reduce her monthly payments and obtain a lower interest rate. What is this process called?

• Amortization table

• Loan consolidation

• Refinancing a mortgage

• Home equity loan

Abigail is considering taking out a loan to cover some unexpected expenses. She has several options available, but she wants to make sure she avoids the ones that could be financially harmful. Which loans should Abigail avoid?

• Loans from pawn shops

• Payday loans

• Tax refund anticipation loans

• All of the above

How can you LEGALLY avoid paying interest on the things you charge to a credit card?

• By paying the minimum balance every month before the due date on the credit card statement.

• By paying the credit card balance in full every month before the due date on the credit card statement.

• By limiting the use of your credit cards to balance transfers only.

• There is no legal way to avoid paying interest if you use your card during the billing cycle.