WorksheetsPersonal Finance: Credit Basics
Total questions: 20
Worksheet time: 10mins
A line of credit established in advance so the borrower does not have to apply for credit each time new credit is desired.
Rent‐to‐own loan
Pawn loan
Open‐end credit
Refund anticipation loan
A loan which the borrower must repay the amount in a specified number of equal payments.
Title loan
Payday loan
Closed‐end credit
Refund anticipation loan
Short‐term loan that provides immediate cash by securing a borrower’s written check or receiving authorization for automatic withdrawal from the borrower’s depository institution account.
Title loan
Payday loan
Closed‐end credit
Refund anticipation loan
Tangible items leased with the condition that the item will be owned by the renter if the term of rent (contract) is completed.
Rent‐to‐own loan
Pawn loan
Open‐end credit
Refund anticipation loan
A loan based on the value of personal property.
Rent‐to‐own loan
Pawn loan
Open‐end credit
Refund anticipation loan
The borrower gives the lender his/her automobile title in exchange for a set amount of cash.
Title loan
Payday loan
Closed‐end credit
Refund anticipation loan
Short‐term cash advance secured by a taxpayer’s expected tax refund.
Title loan
Payday loan
Closed‐end credit
Refund anticipation loan
Annual interest rates for alternative loans can be as high as 300%.
True
False
All lenders check a person’s credit report and score during the loan approval process.
True
False
The terms of a loan are always consistent for the length of the loan.
True
False
An example of closed‐end credit is a secure credit card.
True
False
If an individual does not meet the credit terms for a pawn loan, the lender will keep the property.
True
False
Evaluating the purpose of credit is an important consideration to using credit responsibly.
True
False
Depending on the credit terms, if a person has a late payment, consequences including higher interest rates, may occur.
True
False
Examples of when credit, if used responsibly, can be a positive. (Check All that Apply)
Credit can provide long‐term benefits such as the opportunity to earn a higher income as a result of investing in human capital.
Credit may allow individuals to make large purchases, such as an automobile, that allows them to get to and from work.
Having a credit card will allow an individual to make online purchases more securely and provide a source of open‐end credit in case of emergency.
Credit will not allow individuals to make large purchases, such as an automobile, that allows them to get to and from work.
Describe why a person is spending future income when using credit
When borrowing, individuals are spending their future income because they are committing to making payments for a specified
When borrowing, individuals are saving their future income because they are committing to making payments for a specified
Drew is considering purchasing a new vehicle. What are the things he should review closely on the contract? (Check all that apply)
Interest rate – What is the annual interest rate?
Fees- Are there fees associated with the application process and/or the use of the credit? Are there any
fees for repaying the loan early?
Missed or late payment- What does the credit contract indicate are consequences of missed or late payments?
Default- What is the consequence of not paying back in full the borrowed amount?
Location- Where is the credit institution located?
Laura is using a rent‐to‐own store to purchase a computer valued at $1,000. She is paying $25 per week for 104 weeks (2 years). Why might this loan contribute negatively to her financial well‐being?
She will be paying much more than $1,000 for the computer ($2,600).
Using a Rent-To-Own store is a bad choice for everyone needing to purchase a computer
Edward is considering buying a home using credit. What are three questions he should ask himself to ensure he is using credit responsibly?
Could he wait in order to save money to use toward the purchase?
Could he use savings or investment money to make the purchase?
Can he manage the payment along with his other financial responsibilities?
Is the house in a prime location for starting a business?
Jonna is considering using a refund anticipation loan to have money for a deposit on a Caribbean vacation. What are two alternatives to credit that she should consider before using this type of credit? (Check all that apply)
Using savings to pay for the deposit.
Waiting until she has her refund before paying the deposit.
Opening an account with Capital One and using the credit card to pay for the deposit
