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WorksheetsUnit 4 Summative Review
Total questions: 63
Worksheet time: 32mins
Ashton 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 different
Debit cards and prepaid debit cards are the same
Debit cards and credit cards are the same
The average APR for a payday loan is closest to …
4%
14%
40%
400%
Which of the following statements comparing credit and debit cards is TRUE?
Far more businesses accept credit cards than debit cards
Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard
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
Which of the following is most likely to represent a fixed rate, secured debt?
A student loan
A credit card
A prepaid debit card
An auto 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?
Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount
The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly
The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan
Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash
If you are having trouble making auto loan payments and are really following a tight budget, which recommendation below represents the WORST advice?
Find an extra source of income by taking a second job, working longer hours, or borrowing from family if they can afford to help
Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control
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
When loans are amortized, monthly payments are _______ , while the amount of your monthly payment applied to interest ________ and the amount of your monthly payment applied to the principal _______ over time.
Constant, Increases, Increases
Constant, Decreases, Increases
Variable, Decreases, Increases
Variable, Decreases, Decreases
Which of the following is true about fixed and adjustable-rate mortgages?
Fixed-rate mortgages have a constant payment every month, but an interest rate that increases throughout the term of the loan
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
Which of these credit payback strategies would lead to the HIGHEST overall cost?
Paying off your credit card bill in full every month
Paying 20% of your credit card balance every month on time
Making the minimum payment (3% of your credit card balance) every month on time
Making the minimum payment (3% of your credit card balance) every month with an occasional late payment
Denise took out a payday loan for $300 in August. By February of the next year, she was able to pay back the loan, but she had spent a total of $750 doing so. What’s the most likely story of how this happened?
The minimum monthly payment for payday loans is usually only $10 or $15, so a lot of interested accumulated
Upfront, Denise knew there would be $450 of fees attached to the loan, but she took out the loan anyway
Payday loans must be paid in full within two weeks, and if not, the only option is to renew the loan for a high penalty fee, which she did approximately 12 times
Denise not only paid the $300 she owed, but she prepaid an extra $450 in case she needs another loan in upcoming months
Kaylyn 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 $0 for your down payment, and choose a loan with a short term length
Put in $2500 for your down payment, and choose a loan with a short term length
Put in $3500 for your down payment, and choose a loan with a long term length
Put in $5000 for your down payment, and choose a loan with a long 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?
When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed
Your APR will be within that range, depending on the strength of your credit history
In this case, you want the highest APR in the range because you’ll earn more
The APR on credit cards is usually fixed, so it won't be adjusted as long as you are a cardholder
What is an advantage of using a credit card?
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
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
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.
If you make the minimum payment on your card within the 25 day period, the credit card company will not charge you interest
If you pay your previous balance in full after the due date, the credit card company will not charge you interest
25 days is an exceptionally long period without paying a credit card bill
The 25 days after the end of the billing cycle is referred to as the grace period
A loan with a shorter term length will have __________ monthly payments, and you will pay __________ in total interest.
higher, less
higher, more
lower, less
lower, more
Select the statement below that accurately describes a characteristic of a credit card.
You owe the same payment every month
You must have money deposited into a checking account to use the credit card for purchases
Making full payments on-time every month is the only way to avoid interest charges
They do not charge interest
Which of the following statements is CORRECT about secured loans?
They are a good choice to use for student loans
If the borrower does not make payments, the lender can repossess the item
In the event of default, the borrower loses nothing except for the down payment
They usually have higher interest rates as compared with unsecured loans
An excellent credit score will help with which aspect of car financing?
Bargaining for a great sales price
Receiving a large down payment
Qualifying for a low interest rate
Having a wide selection of term lengths
As a young adult, all of the following are good strategies for building credit, EXCEPT:
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
Open and use a secured credit card
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?
Amy chose a shorter term for her mortgage, so her monthly payments are higher
Amy made a larger down payment, so her monthly payments are also larger
Chuck chose a shorter term for his mortgage, so his monthly payments are also lower
Chuck has a lower credit score, so his interest payments are also lower
Why are payday loans so much easier to qualify for than traditional bank loans?
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
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
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 large sum of money you pay when taking out a mortgage so that the principal of your loan is smaller
A specific type of tax advantaged bank account used for saving money to buy a house
The first year’s worth of property taxes, held in reserve
A prepayment to a real estate agent so that they will start helping you house hunt
Jericho 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?
$200
$800
$1000
$1800
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 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
This enables the credit card company to make more money
This helps cardholders develop financial independence
How do the Annual Percentage Rates (APRs) on payday loans get to be so high?
The loans go to affluent banking customers, so they charge a lot for the exclusivity
The loan amounts are small, but the fees charged are relatively high and are renewed on a very short time-scale
They make most of their money through ATM withdrawal fees as well as overdraft fees on checking accounts
The amount of money people borrow using payday loans is typically quite high – $10,000 or more – so the fees are also high
Three of these statements reflect payday loans. Choose the other statement, which is aligned with a traditional bank loan instead.
Easy to obtain without a lot of paperwork
Requires a credit check and suitably high credit score
Requires payment in full in less than a month
APR can easily be over 200%
Why are payday loans so popular?
They are a fast, easy way to save money and budget effectively
They meet the need for quick cash for very large purchases such as cars and homes
They are a terrific way to build your credit history and improve your credit score
They are accessible to people who need to borrow small amounts of money and don’t have any better options
What type of marketing techniques do predatory lenders use? Hint: Choose two correct answers.
They offer instant approval
They require the borrower to have good credit
They offer quick cash
They require multiple financial documents and information to approve your loan
Based on what you've learned so far, what do you think is the average annual percentage rate (APR) on a payday loan?
0%
10%
30%
400%
Which of the following statements about payday loans is TRUE?
Payday loans usually have low interest rates
Payday loans do not have any additional fees like other types of unsecured loans
Payday loans get borrowers into a sometimes inescapable cycle of borrowing money because of the high interest rates and fees
To qualify for a payday loan you must have a checking account and excellent credit score
Danya has found her dream home, and it’s on the market for $200,000. Each of these is a way she can decrease the total amount she’ll pay EXCEPT…
Increase her down payment
Qualify for a lower interest rate
Choose a shorter loan term
Choose a mortgage with a higher APR
Which of the following is a good reason to choose a 30-year, fixed-rate mortgage?
You want to make high monthly payments and close your mortgage sooner
You want to minimize the amount of interest you’ll pay over the life of the loan
You want low, predictable monthly payments
You want to take advantage of the ups and downs of the market and don’t mind risk
What causes the total amount of interest paid on a mortgage to be so much higher than on other types of debts?
The APR on a mortgage is typically between 20-30%, which is higher than for other types of debt
The principal on a mortgage is high and the term is long
Borrowers typically delay making mortgage payments because their home cannot be repossessed for nonpayment
Homeownership is not very common in the US, so mortgages are priced high because demand is so low
Which statement most accurately describes the difference between leasing and owning a vehicle?
Leasing is a term used when you purchase a car for the longest term possible
Leasing a car is making monthly payments to use a car for a fixed period of time, but then you return it without owning it
Leasing is a term used when you take the car for an initial test drive
Leasing a car requires a very large down payment, while purchasing a car does not
A longer term length will make your monthly payment lower and you will pay _______ interest when compared to a shorter term length and higher monthly payment.
More
Less
The same amount
A higher credit score...
Will help you obtain a lower interest rate on an auto loan
Will help you obtain a higher interest rate on an auto loan
Has no impact on the interest rate on an auto loan
How can making a larger down payment save you money when purchasing a car? (Choose two correct answers)
Your monthly payment will be higher
Your monthly payment will be lower
You will pay less interest over the life of the loan
You will pay more interest over the life of the loan
Shonda’s mom recommends that she spend a year building her credit history and boosting her credit score before she applies for a loan to buy her dream car, which costs $54,000. Why is that good advice?
A good credit score will reduce her down payment
A good credit score will reduce her principal
A good credit score will reduce her interest rate
A good credit score will allow her to pay the full $54,000 in cash
If you were offered two auto loan options with the same principal and interest rate, but one was a 48-month loan and one was a 72-month loan, which outcome below will reflect the impact of that difference in term?
The 48-month loan will cost less money overall
The 48-month loan will have lower monthly costs
The 48-month loan will take longer to pay off
The 48-month loan will always be a better choice
Antonio has $4000 saved to use for a down payment, and he’s about to buy a car that costs $29,000. How much would you expect his loan principal to be?
$4000
$25,000
$33,000
$29,000 x his interest rate
As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?
The interest portion will grow
The interest portion will shrink
The interest portion will stay the same
The interest portion will sometimes grow and sometimes shrink
It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?
Substantially less than $396
Slightly less than $396
Exactly $396
Slightly more than $396
You’re debating whether to buy a trendy fall jacket that costs a whopping $200! You have it sitting in your online cart, and you see there’s a “Buy Now, Pay Later” option available for the jacket. Which best describes an example of how that would work?
You pay the full $200 now, but they wait a month to send it to you, giving you the chance to cancel, penalty free, if you change your mind
You pay $100 right now, you receive the jacket, and you owe $100 more a year later on the anniversary of your purchase date
They ship you the jacket now, and you owe four $50 payments, once every 2 weeks, until the jacket is paid in full
You reserve the jacket now, you pay as much or as little as you want in each payment, and when you eventually get to $200, they send you the jacket
A fully amortized payment is split into which two components?
The principal and the payment
The principal and the interest
The loan term and the interest
The interest rate and the total interest
Casey has an amortized loan payment of $400, and the interest they owe for that month is $50. By how much does Casey pay down the principal?
$50
$350
$400
$450
As the months progress on an amortized loan...
The payments stay the same, but the principal is paid down more quickly
The payments stay the same, but the principal is paid down more slowly
The payment sizes decrease, but the principal is paid down at the same rate
The payment sizes decrease, and the principal is paid down more quickly
If you can afford it, why is it a great idea to pay MORE than your amortized payment on a car, home, or other loan? Select all that apply.
You will pay your loan off faster
You will pay less total interest
You will pay less total principal
You will pay less money overall
If you buy a $1000 bicycle, which credit card payoff strategy will result in your paying the LEAST total amount?
Pay the minimum monthly payment
Pay $100 per month for 10 months
Pay $250 per month until it’s paid off
Don’t make any payments until you have the full $1000 saved, regardless of how long that takes
If your credit card limit is $800 and your outstanding balance is $725, what is the largest amount you can charge on that card in the upcoming month?
$0
$75
$725
$800
Each of the following people has $5000 in debt. Which debt is most worthwhile?
Phil, who spent mostly on GoFundMe campaigns for people he saw on social media
Tyree, who took out a loan for an old used car so he can drive to and from campus
JJ, who used a credit card to pay his daily expenses while he was out of a job
It’s impossible to tell, because we don’t know how much they each valued the spending, how much it impacted their lives, or how easily they can repay the debt
What is the advantage of paying your credit card balance in full each month?
You will incur only a small "paid in full" fee on your next credit card statement
You pay only a small amount of interest
You have less of your credit limit available, therefore, less temptation to spend
You avoid paying any interest and fees
What is an outstanding balance?
The amount you paid in your minimum payment
The amount you spent in total
The amount you still owe after you have made your most recent payment
The amount you still have available in your line of credit
Why is it more difficult to get out of debt when only paying the minimum payment?
Your entire minimum payment goes toward principal and the interest continues to compound
The majority of your minimum payment is going toward interest and finance charges and only a small amount toward the principal
Your credit limit always resets, so you have a lot of spending power each month
The credit card company extends you a line of credit. This is free money that you can use to purchase the "stuff" that you need.
Which statement is true of both debit AND credit cards?
Both can trap you in an endless cycle of debt if you’re not careful
Both allow you to make purchases in a store or online
Both typically have interest rates between 10-30%
Both require you to pay a minimum monthly payment when your bill arrives
Felix opens a credit card with no annual fee, so he assumes that using the credit card regularly will be absolutely free for the next two years while he finishes grad school. Why is his assumption incorrect?
Unless he pays the whole bill every month, he will pay interest according to his APR
He will automatically pay penalty fees if he uses his credit card for more than 3 consecutive months
If his grace period is any longer than 10 days, he will have to pay fees
He will need to pay a separate student fee because he is still in grad school
Which statement best describes a Schumer box?
The final calculation of how much you owe on your credit card bill each month
A standardized way of presenting the key terms of your credit card agreement
A legal document stating that you’re behind on your credit card payments
The outstanding balance on your credit card once you’ve made your recent payment
Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?
Principal
Term
Interest rate
APR
Each of the following represents an installment loan EXCEPT…
Home mortgage
Auto loan
Student loan
Credit card
Which of these actions would most likely decrease a person’s net worth for at least the next 6 months?
Use a loan to buy a brand new car
Work 10 hours of overtime each week and put all extra earnings into a savings account
Work 10 hours of overtime each week and use all extra earnings to pay down student loan debt
Open 3 new credit cards but don’t spend any money on them
The details of any loan will include the following 3 components:
The principal, the interest rate, and the loan term
The money you pay, the money the lender pays, and the principal
The mortgage, the auto loan, and the small business loan
The loan amount, the credit card payment, and the statement
Why are secured loans considered less risky to the lender?
Lenders are allowed to conduct background checks for secured loans
Lenders can take valuable collateral if you fail to repay your loan
Lenders give secured loans all the time, so they're more comfortable doing them
Lenders can check your credit score before giving a secured loan, which they can't do for an unsecured loan
Having a good credit score, making a larger down payment, and finding a cosigner with good credit are all ways to…
Decrease your principal
Decrease your interest rate
Increase your term
Increase your total payments
Each of these statements describes a variable rate loan EXCEPT...
Typically starts with a lower interest rate than a fixed rate loan
Is riskier to the borrower because the interest rate could increase substantially
Is almost always a better option
Can increase or decrease the interest rate over the course of the loan
