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WorksheetsChapter 3 Review: Types of Credit
Total questions: 27
Worksheet time: 2hrs 15mins
Which of the following is an example of credit?
Getting a certificate of deposit (CD) from the bank
Paying for college with money your parents helped save
Splitting the cost of a meal with a friend
Taking out a mortgage to buy a home
Choose the option that best completes this sentence: When using a credit card…
you will pay interest whether or not you pay your bill every month.
you are transferring money from your savings account directly to another party.
you are getting a short-term loan to allow you to purchase an item now which you can pay for later.
you always have the option to wait to make a payment because late payments don’t affect your credit.
Which of the following is usually a secured debt?
Student loan
Auto loan
Credit card
Personal Loan
Pretend you take out a 30-year fixed rate mortgage for $250,000. Which of the following statements would be true?
The payment amount you owe every month will be the same
The amount of interest you pay every month will be the same
The amount of principal you pay every month will be the same
You will not be allowed to pay more than the amount due every month
Mustapha needs a $3000 loan to buy a used car so he can take a job not accessible by public transportation. Which loan structure would result in the HIGHEST TOTAL COST?
Make a $500 down payment, then pay $500 per month from his paychecks until the debt is paid off.
Make a $1500 down payment, then pay $500 per month from his paychecks until the debt is paid off.
Make a $500 down payment, then pay the $150 minimum monthly payments required until the debt is paid off.
Don't make a down payment, but pay the $150 minimum monthly payments required until the debt is paid off.
Which description best fits what is meant when someone talks about their credit card APR?
The total amount of purchases they charge on an annual basis
The remaining balance left on a credit card once the minimum monthly payment is made
The average credit score each person is assigned based on their payment history
The percent the credit card company charges you for the benefit of receiving a temporary loan from them
Which statement includes one real benefit from shopping with a credit card?
You may earn cash back, travel rewards, or other perks for each dollar you spend
Most stores will give you a discount if you pay with credit instead of cash or debit
It pulls money directly from your bank account, preventing you from overspending
If you do not have the money to pay your monthly bill, you can just wait a few months and pay the same amount then
The following high school seniors each bought $1500 of stuff to bring to college with them in the fall. Each one used a credit card with similar terms to make their purchases. Which student will end up paying the MOST for their purchases.
Robert, who makes $300 payments per month until the debit is $0
Stephan, who pays the first $1000 using graduation money and then pays $250 per month until the debt is $0
Nelson, who makes the minimum monthly payment each month until the debt is $0
Joan, who can't afford to make any payments and plans to put off the debt until she gets a summer job next year
Which of the following statements best explains the purpose of a Schumer box?
Gives the lender a clear report of your credit history and creditworthiness for a new card
Calculates the total interest you will be charged on your previous month's purchases
Gives the borrower a clear description of the APR, fees, and other major conditions of their credit card
Provides a list of all purchases made on a credit card and the price of each item, for the benefit of the lender and the borrower
Mia doesn't have any credit history, so she's going to open a secured credit card to begin building her credit. She puts down an $800 security deposit. What feature of an unsecured credit card is Mia's security deposit most like?
the APR
the term
the credit limit
the annual fee
Which of the following is one potential danger of taking advantage of a "0% APR for 1 year" deal?
After the first year you will no longer be able to use the card
Having such a low rate for so long might decrease your credit score
One late payment may cancel the 0% introductory rate
After the first year you will pay interest on every purchase, even if you pay them off right away
Omar is about to start his final semester of college, and he doesn't have enough money saved to afford the $750 he needs in books. He's 21, so he's going to open his own credit card to pay for the books, and then not use it again. His plan is to pay $100 per month toward his bill, until it's paid off. Which credit card offer is the best offer for Omar?
Free balance transfers, APR of 12.99% with $150 annual fee
0% APR for the first 6 months, then an APR of 20.99%, with no annual fee
Free balance transfers, APR of 13.99% with no annual fee
0% APR for the first 6 months, then an APR of 14.99%, with no annual fee.
Ramon and Stephen are each considering taking out a $1200 loan so they can buy dirt bikes to enjoy on the weekend. Ramon's bank is offering him a 4.3% interest rate, while Stephen's is offering him a 2.4% interest rate. Which of the following statements is TRUE.
If each loan has a term of 3 years, Ramon's monthly payments will be higher
If they both make $300 payments a month, Ramon will pay off his loan faster
Both men would likely get a better interest rate if they used a credit card, rather than a personal loan, to make their purchases
If Ramon applies to Stephen's bank, instead, for his loan, he's guaranteed to get the same 2.4% interest rate that Stephen's been offered
Choose the option that BEST completes this sentence: Personal loans are called "personal loans" because...
you apply for them in-person, at your own bank branch or at a competing branch (if they offer better rates).
you apply for them in-person or online, but whether you are given the loan depends on your personal credit score.
they are lent based on your personal credit history rather than secured by an asset like a house or car.
they are given to someone based on their personal familiarity with their banker.
Which statement below accurately describes how peer-to-peer lending works?
Large banks loan money to smaller "peer" banks in their community, so those smaller banks can afford to give people loans.
Peer-to-peer businesses link investors to personal loan requests. The interest paid by the borrower provides the lender's investment income.
When an individual needs a loan, they find friends/family willing to lend the money, and the peer-to-peer service arranges the legal aspects.
Potential borrowers compete in a series of peer-to-peer challenges, and the winners receive loan funding.
Which of these represents a positive reason to borrow from your own 401(k) rather than a bank?
The interest you are paying on the loan goes back into your own account, rather than to a bank.
If you decide you'd rather just keep all the money without paying it back, there's no penalty for that with a 401(k) loan.
The interest rate on a 401(k) loan will always be lower than the rate on a bank loan, so your monthly payments will always be smaller.
If you decide to leave your job before your 401(k) loan is completely paid off, your company repays the remainder of the loan on your behalf.
Which statement about car leases is TRUE?
Leases typically have lower monthly payments than you'd pay to purchase the same car using a loan.
Leases typically have higher monthly payments than you'd pay to purchase the same car using a loan.
Leases are always the better option when getting a car, especially if you have a down payment.
Leases are never the better option when getting a car, especially if you have a down payment.
If you take out an auto loan and then realize later that you cannot afford it, which is NOT a viable option for dealing with this problem?
Add more money to your total income, either by working more hours or by taking on a second job, so you can make your payments on-time.
Refinance to create lower monthly payments, either by calling your current lender or by finding a different creditor with more favorable terms.
Cease making your payments until you have more money saved up; it's unlikely they'll repossess your car, and you get to keep driving it.
Cut other aspects of your budget so you can devote that money toward your car payments.
Which of the following is likely to INCREASE your monthly payment?
Increasing the size of your down payment
Decreasing the number of months in your term
Qualifying for a lower APR
Applying the trade-in value of your old car toward your new car purchase
Which of the following represents a “rule of thumb” for how much student loan debt you should be willing to incur to pay for college?
Borrow no more than one year of your parents’ annual salary
Determine the sticker price for the school, and then refuse to pay any more than half that amount
One year of student loan debt should be no more than the starting salary in your anticipated career
Your total student loan debt should be no more than the starting salary in your anticipated career
Carla's financial aid package from Magna University includes a grant as well as unsubsidized and subsidized Federal student loans. Her parents said they're also willing to cosign on her taking out a private student loan, if needed. Carla goes to her guidance counselor for help deciding which of these funding options to use first. Which of the following options will likely be MOST expensive for Carla?
Private loan
Grant
Unsubsidized federal student loan
Subsidized federal student loan
What is one benefit of consolidating Federal student loans?
Interest-free deferment
Loan cancellation
Having only one bill to pay each month
Being able to add to your student loans, even though you are no longer a student
If you do not contact your loan servicer to select another option, your Federal student loans will default to standard repayment, which has a term of...
1 year
5 years
10 years
25 years
Yun is trying to remember the difference between subsidized and unsubsidized student loans. He asks his friends at lunch, and they give the following answers. Which friend is right?
Cara: On subsidized loans, you never pay any interest; you pay interest on unsubsidized loans.
Liz: On subsidized loans, the government pays the interest while you're in college, and then you pay the interest once you're no longer enrolled.
Bill: With subsidized loans, if you don't graduate and earn a diploma, you don't have to pay those loans back. All unsubsidized loans must be repaid.
Clare: Subsidized loans come from private banks, while unsubsidized loans come from the Federal government.
Which of the following statements is TRUE?
A home equity loan is only available once you’ve completely paid off your house
A home equity loan typically has a fixed interest rate
A home equity loan is typically interest free
A home equity loan does not need to be paid back until you’ve paid off your house
Denise buys a $100,000 condo using a $20,000 down payment on a 30-year fixed-rate loan. After 5 years of payments, she's made approximately $24,000 in payments and still owes approximately $75,000. How much equity does Denise have in her house?
$100,000 because she owned all of the house as soon as she signed the mortgage papers.
$20,000 because, until she pays off the house fully, Denise's down payment is her only equity.
$44,000 because that's the total amount she's paid so far.
$25,000 because she still owes $75,000.
Which of the following statements is TRUE?
Most people would consider a fixed-rate mortgage to be riskier than an adjustable-rate mortgage.
Most people would consider a fixed-rate mortgage to be less risky than an adjustable-rate mortgage.
Regardless of your circumstances, you should always pick a fixed-rate mortgage over an adjustable rate mortgage.
Regardless of your circumstances, you should always pick an adjustable rate mortgage over a fixed rate mortgage.
