WorksheetsUnit 4 Types of Credit Review
Total questions: 30
Worksheet time: 8hrs 30mins
The amount you owe as the cost to borrowing money
Lease
Loan
Collateral
Interest
Shira is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true?
All 3 cards are completely the same
Debit cards and prepaid debit cards are the same
Debit cards and credit cards are the same
All 3 cards are completely different
The average APR for a payday loan is closest to …
40%
400%
14%
4%
Which of the following statements comparing credit and debit cards is TRUE?
Credit card companies provide you with a monthly statement, while debit cards do not
With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later
Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard
Far more businesses accept credit cards than debit cards
The smallest amount of a credit card bill that a credit card holder must pay during a billing cycle to remain in good standing with the lender
Minimum Payment
Overdraft Protection
Peer-to-Peer Lending
Annual Fee
Which of the following is most likely to represent a fixed rate, secured debt?
An auto loan
A credit card
A prepaid debit card
A student loan
Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on an amortized loan?
Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash
The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan
The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly
Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount
If you are having trouble making auto loan payments and are really following a tight budget, which recommendation below represents the WORST advice?
Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control
Find an extra source of income by taking a second job, working longer hours, or borrowing from family if they can afford to help
Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms
Explore whether a free or non-profit credit counseling service could help
Long term failure to repay a loan according to the terms agreed to, which has a substantial negative impact on the borrower's credit score
Default
Grace Period
Late Payment Fee
Revolving Credit
Which of the following is true about fixed and adjustable-rate mortgages?
Fixed-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
Adjustable-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
The two mortgages work the same way but are called different names depending if they come from a bank or a credit union
Fixed-rate mortgages have a constant payment every month, but an interest rate that increases throughout the term of the loan
Which of these credit payback strategies would lead to the HIGHEST overall cost?
Making the minimum payment (3% of your credit card balance) every month on time
Paying off your credit card bill in full every month
Making the minimum payment (3% of your credit card balance) every month with an occasional late payment
Paying 20% of your credit card balance every month on time
Taylor is about to go car shopping, and she has $5000 saved that she can use for a down payment while still having extra cash in her emergency fund. She expects the exact model car she’s looking for to cost $35,000. If her top priority is having the lowest monthly payments possible, which advice should she follow?
Put in $5000 for your down payment, and choose a loan with a long term length
Put in $3500 for your down payment, and choose a loan with a long term length
Put in $2500 for your down payment, and choose a loan with a short term length
Put in $0 for your down payment, and choose a loan with a short term length
Reading through a credit card’s Schumer Box, you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true?
In this case, you want the highest APR in the range because you’ll earn more
When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed
The APR on credit cards is usually fixed, so it won't be adjusted as long as you are a cardholder
Your APR will be within that range, depending on the strength of your credit history
What is an advantage of using a credit card?
If you need to carry a balance, the interest rates are generally quite low (less than 5%)
You can make an emergency purchase that you otherwise don’t have the money to pay for right now
It will not affect your credit score or credit history
Since it is tied directly to your checking account, it prevents you from spending money you do not have
A loan taken by individuals and businesses to make real estate purchases without paying the entire value of the purchase up front
Home-Equity Loan
Direct Plus Loan
Mortgage
Consolidation Loan
Credit card disclosure: "Your due date is at least 25 days after the end of the billing cycle. We will not charge you interest on new purchases provided that you have paid your previous balance in full by the due date each month." Identify the true statement.
The 25 days after the end of the billing cycle is referred to as the grace period
25 days is an exceptionally long period without paying a credit card bill
If you pay your previous balance in full after the due date, the credit card company will not charge you interest
If you make the minimum payment on your card within the 25 day period, the credit card company will not charge you interest
Select the statement below that accurately describes a characteristic of a credit card.
They do not charge interest
You owe the same payment every month
Making full payments on-time every month is the only way to avoid interest charges
You must have money deposited into a checking account to use the credit card for purchases
Something valuable that the lender can take as payment if you can't or don't repay your secured loan
Balance Transfer
Amortization
Interest
Collateral
Which of the following statements is CORRECT about secured loans?
They usually have higher interest rates as compared with unsecured loans
They are a good choice to use for student loans
Secured loans require a cosigner
If the borrower does not make payments, the lender can repossess the item
The number of days between a borrower's statement date and when payment is due, often without accruing interest
Credit Limit
Lease
Grace Period
Statement
An excellent credit score will help with which aspect of car financing?
Qualifying for a low interest rate
Having a wide selection of term lengths
Receiving a large down payment
Bargaining for a great sales price
As a young adult, all of the following are good strategies for building credit, EXCEPT:
Open and use a secured credit card
Open a credit card, with your parent or guardian as a cosigner
Take out a payday loan
Become an authorized user on a credit card used by your parent or guardian
Amy and Chuck each buy a house in the same neighborhood for $250,000. Amy's monthly mortgage payment is $400 more per month than Chuck's. Which one of the following statements could explain this difference?
Chuck chose a shorter term for his mortgage, so his monthly payments are also lower
Amy chose a shorter term for her mortgage, so her monthly payments are higher
Chuck has a lower credit score, so his interest payments are also lower
Amy made a larger down payment, so her monthly payments are also larger
Why are payday loans so much easier to qualify for than traditional bank loans?
Payday loans require proof of employment or other regular income but not a credit check
Payday loans are typically for such small dollar amounts that no one cares if you repay them or not
Payday loans are only used by affluent households, and the banks know they have enough money to cover them
Payday loans are just another word for direct deposit, and almost all employers offer their employees direct deposit instead of a paper paycheck
A small loan, offered through a business, lent at a high interest rate, and meant to be paid as soon as you receive your next paycheck
Small Business Loan
Payday Loan
Fixed-Rate Loan
Installment Loan
Trudy tells her mom that she wants to buy a house within two years of graduating from college. Her mom says Trudy will need a down payment first. What is a down payment?
A specific type of tax advantaged bank account used for saving money to buy a house
A prepayment to a real estate agent so that they will start helping you house hunt
A large sum of money you pay when taking out a mortgage so that the principal of your loan is smaller
The first year’s worth of property taxes, held in reserve
Duc has a credit card with a $1000 credit limit. His outstanding balance is currently $800. What is the maximum amount he can now spend on this credit card?
$800
$200
$1000
$1800
Which of the following statements is true about this Schumer Box?
Depending on your creditworthiness, the APR for a borrower will always either be 8.99%, 10.99% or 12.99%
There is an introductory APR that is valid only for 1 year, but then the permanent APR is lower than that at 8.99%.
You will never be charged an APR higher than 14.99%
A 28.99% APR may be applied to your account for late payment
Why would credit card companies prefer that their cardholders make the minimum monthly payment every month rather than paying their total balance in full?
This enables the credit card company to make more money
This helps cardholders develop financial independence
This is required by federal law for tax purposes
This allows the card holder to pay their bill quickly and close the card when they’re ready
Someone who legally agrees to take responsibility for a person's debt if they cannot repay it
Authorized User
Cosigner
Credit Union
Principal
