WorksheetsUnit 4 Assessment
Total questions: 50
Worksheet time: 38mins
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 different
Debit cards and prepaid debit cards are the same
Debit cards and credit cards are the same
All 3 cards are completely 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
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 $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
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?
$200
$800
$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 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
Why is it important to understand the difference between debit and credit cards?
To avoid using them entirely.
To make informed decisions about managing your money.
Because only one can be used for online purchases.
Debit cards are not widely accepted.
What is the primary benefit of using a credit card responsibly?
Accumulating debt
Building a good credit history
Avoiding the need for a bank account
Earning unlimited cash back on purchases
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
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
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 use this type of card, you are spending money from your own bank account.
Credit Card
Debit Card
Both
Neither
This type of card requires a PIN to be entered when you use it.
Credit Card
Debit Card
Both
Neither
Jasmine likes that allow her to build a positive credit history so that she can purchase a home in the future.
Eleanor stopped for a coffee on her way to work and paid by swiping her card. The cost of her coffee was immediately taken out of her checking account.
What type of card is being described?
Credit Card
Debit Card
Mrs. Wright has organized the features of a credit and a debit card into a table below. Which description is
the best representation for the missing detail?
purchases are unlimited in funds
purchases are charged a fee at the time of
transaction
purchases must in a one-time payment
purchases are subject to a credit limit
This type of card lets you buy things, even if you can't really afford to.
Credit Card
Debit Card
Both
Neither
Pete purchased a new set of speakers for his home. The speakers cost $400 after taxes, but he actually paid $453.12 by the time they were paid off because of interest.
What type of card is being described?
Credit Card
Debit Card
Which statement about credit cards is true?
A credit card company charges interest rates on balances not paid off each month.
A credit card allows you to use money from your savings account.
A credit card company does not make you pay back all of the money you owe.
A credit card takes money directly out of your checking account.
Drake likes that allow him to make purchases on things that he might not necessarily have the money for at the time, but knows he will later.
Credit cards, when used responsibly, can provide benefits for its consumers. Which statement below describes a benefit for a consumer using a credit card?
Using a credit card responsibly and paying the balance off each month can lower your credit score.
A credit card doesn't cost you any more money than using a debit card as long as you make regular payments.
Using a credit card responsibly and paying the balance off each month can help improve your credit score.
People that use credit cards become wealthy more quickly.
Nora attempts to purchase a new purse by swiping her card. However, the transaction is declined because she does not have enough money in her account to pay for the cost of her purse.
What type of card is being described?
Credit Card
Debit Card
What is a credit score?
a three-digit score that tells lenders how much money you make each year.
A five-digit numerical rating that reflects how likely you are to repay your debt.
A three-digit numerical rating that reflects how likely you are to repay your debt.
A credit score is a five-digit numerical rating that reflects how likely you are to fail at paying your debts
Imagine you've been using your credit card for almost all your purchases, from small daily items to big-ticket items. What could be a disadvantage of this practice?
They can help build your credit score.
They are more convenient than carrying cash.
They can lead to debt if not used responsibly.
They are accepted worldwide.
What is the main risk of taking out a payday loan?
The possibility of the interest rate decreasing over time
The potential for very high interest rates leading to a debt cycle
The risk of losing collateral such as a house or car
The requirement to take out additional loans to cover the first
What is a fixed-rate mortgage?
A mortgage with a rate that changes based on the market
A mortgage with a rate that remains the same throughout the loan term
A mortgage that can be paid off at any time without penalty
A mortgage with rates that increase annually
How does a variable interest rate differ from a fixed interest rate?
It remains the same throughout the life of the loan
It changes at the discretion of the lender
It can increase or decrease based on market conditions
It is always lower than a fixed interest rate
