Day 3 Understanding Debt

What is an amortization schedule?

• A table that shows how a loan gets paid off over time.

• A chart that tracks stock prices.

• A list of monthly expenses.

• A schedule for paying utility bills.

Which of the following is NOT shown in each row of an amortization schedule?

• Your monthly payment

• How much goes toward the interest

• The remaining balance

• Your credit score

In an amortization schedule, what does the principal refer to?

• The original loan amount

• The interest paid each month

• The total amount paid over the loan

• The monthly payment

Why is it important to know how much of your monthly payment goes toward interest versus principal in an amortization schedule?

• It helps you understand how quickly you are paying off the loan.

• It tells you your credit score.

• It shows your monthly income.

• It helps you calculate your taxes.

If you borrow a larger loan amount, what is likely to happen to your monthly payments or the length of time you pay?

• You will pay more each month or for a longer time

• You will pay less each month or for a shorter time

• Your payments will not change

• The interest rate will decrease

Why is it easier to pay off a loan quickly if you borrow less?

• Because the total amount to be repaid is smaller

• Because the interest rate is higher

• Because the bank requires it

• Because the loan term is fixed

A student is considering two loan options: one with a higher principal and one with a lower principal. Using your understanding of loan schedules, which option would make it easier for the student to pay off the loan quickly, and why?

• The lower principal, because the total amount to be repaid is less

• The higher principal, because the interest rate is lower

• The higher principal, because the monthly payments are smaller

• The lower principal, because the loan term is longer

If you choose a long loan term, what can you expect regarding your payments and total interest?

• Smaller payments and more interest

• Bigger payments and less total interest

• Smaller payments and less total interest

• Bigger payments and more interest

What does a low interest rate (APR) mean for your loan payments?

• You’ll pay less overall.

• You’ll pay more overall.

• You’ll pay the same amount regardless of the rate.

• You’ll pay no interest at all.

Why is it important to consider the interest rate (APR) when taking a loan?

• It affects how much you pay in total.

• It determines the color of your bank card.

• It changes your loan into a grant.

• It decides your credit score automatically.