Understanding Credit and Lending

The video discusses credit and lending, explaining how credit works, the types of loans available, and the costs associated with them. It highlights the importance of credit scores in determining interest rates and the risks involved with different types of loans, including mortgages, car loans, and credit cards. The video also warns against high-interest loans like payday loans, emphasizing the financial risks they pose.

What is the primary function of a credit card?

• To track expenses

• To earn rewards

• To lend money for purchases

• To store money

What is a common cost associated with loans?

• Maintenance fee

• Transaction fee

• Interest rate

• Service charge

How does a higher credit score generally affect your loan interest rate?

• Decreases the interest rate

• Increases the interest rate

• Doubles the interest rate

• Has no effect

What happens if you fail to repay a mortgage?

• You will be charged a late fee

• The bank will foreclose and take the house

• The bank will increase your interest rate

• Your credit score will improve

Why do credit cards often have higher interest rates?

• They are considered low risk by banks

• They have longer repayment terms

• They offer more rewards

• They are considered high risk by banks

What is a payday loan?

• A loan for purchasing a house

• A short-term loan with high interest

• A loan for buying a car

• A long-term loan with low interest

What is a potential consequence of not repaying a credit card balance?

• Improved credit score

• Lower interest rates

• Increased credit limit

• Higher future borrowing costs

What is a key takeaway regarding the use of credit?

• Credit is only for emergencies

• Credit should never be used

• The bigger a risk you are, the less you pay

• The bigger a risk you are, the more you pay

What is a reasonable use of credit according to the video?

• Gambling

• Paying for vacations

• Investing in real estate

• Buying luxury items

What should you be cautious about when borrowing for consumption?

• Borrowing for investments

• Borrowing for education

• Borrowing too much

• Borrowing too little