WorksheetsUnit 4 Types of Credit - Review
Total questions: 30
Worksheet time: 15mins
What is true when 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
What is true when 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 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
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, Decreases, Increases
Variable, Increases, Decreases
Constant, Increases, Decreases
Variable, Decreases, Increases
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
The average APR for a payday loan is closest to ...
4%
14%
40%
400%
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
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
Jeff 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 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
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
Annie and Chad each buy a house in the same neighborhood for $250,000. Annie's monthly mortgage payment is $400 more per month than Chad's. Which one of the following statements could explain this difference?
Annie chose a shorter term for her mortgage, so her monthly payments are higher
Annie made a larger down payment, so her monthly payments are also larger
Chad chose a shorter term for his mortgage, so his monthly payments are also lower
Chad has a lower credit score, so his interest payments are also lower
James is about to go car shopping, and he has $4000 saved that he can use for a down payment while still having extra cash in her emergency fund. He expects the exact model car he's looking for to cost $30,000. If his top priority is having the lowest monthly payments possible, which advice should he 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 $4000 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
Sam is planning to buy a house. She has saved enough for a down payment and intends to take out a mortgage with a low interest rate. The house is within her budget, and she believes its value will increase over time. Which of the following statements BEST categorizes her debt?
It's a bad debt since homes can sometimes decrease in value
It's a good debt as owning a house is often seen as an investment that can provide a future return
It's a bad debt if she cannot pay off the mortgage quickly
It's a good debt only if she avoids paying any interest
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
What is one piece of advice you would offer to a friend if they told you they plan to use a Buy Now, Pay Later service to make an expensive purchase?
Ensure they have a plan to pay off the debt on time.
Ignore the interest rates and fees associated with the service.
Use multiple Buy Now, Pay Later services simultaneously.
Rely on the service for all future purchases.
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
Bart graduated college with $40,000 in student loan and credit card debt and is extremely worried about how he’ll pay it back. His best friend Miguel has the same exact debt and isn’t worried at all. What could explain why these two people have different levels of concern about the same situation?
Bart has a lower-paying job than Miguel.
Miguel has a better financial plan in place.
Bart has more financial responsibilities than Miguel.
Miguel is more optimistic about his financial future.
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
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
A loan with a shorter term length will have _________ monthly payments, and you will pay _________ in total interest.
lower, less
higher, more
higher, less
lower, more
higher, equal
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
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
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
Identify two reasons why it is beneficial for a young adult to establish credit.
To build a credit history for future loans
To qualify for better interest rates
To avoid the need for a co-signer
To increase spending power
Jojo is offered an installment loan at a fixed rate for a secured debt. What does 'fixed rate' mean in this context?
The interest rate remains the same throughout the loan term.
The interest rate can fluctuate based on market conditions.
The interest rate is higher for the first half of the loan term.
The interest rate decreases over time.
Your brother and sister-in-law want to buy their first house. Which of the following is important mortgage advice for them to know?
Consider the total cost of the loan, not just the interest rate.
Choose the shortest loan term possible to save on interest.
Make sure to have a stable income before applying for a mortgage.
All of the above.
