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WorksheetsTypes of Credit
Total questions: 35
Worksheet time: 19mins
Dave is deciding between 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 which value?
4%
14%
40%
400%
Which statement 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
Why is it often a good idea to pay more than the minimum monthly amount due on an amortized loan?
Every time you pay extra, the lender will reduce the interest rate by a small amount
The extra payment will be applied to the principal you owe, paying down your debt more quickly
The extra payment will be applied to interest you owe, reducing the overall cost of your loan
Amortized loans have much higher interest rates than credit cards, so they're the best place to put extra cash
If you are having trouble making auto loan payments and are 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
Stop making payments on some debts to focus on the most expensive or largest debts
Continue making all payments and call lenders to negotiate lower payments, 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 applied to principal ______ over time.
Constant, Increases, Increases
Constant, Decreases, Increases
Variable, Decreases, Increases
Variable, Decreases, Decreases
Which statement 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
Fixed-rate mortgages have a fixed interest rate for a few years, after which the interest rate fluctuates with market conditions
Adjustable-rate mortgages have a fixed interest rate for a few years, after which the rate fluctuates according to market conditions
They work the same way but are just different names depending on whether they come from a bank or credit union
Which credit payback strategy 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
Reading 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
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 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 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 statement 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 most 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, which of the following is NOT a good strategy for building credit?
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
Florinda and Marc each buy a house for $250,000 in the same neighborhood. Florinda's monthly mortgage payment is $400 more per month than Marc’s. Which statement best explains 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 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 direct deposit
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
Megan wants to buy a house within two years of graduating college. Her mom says she’ll 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
Lawrence has a credit card with a $1,000 credit limit. His outstanding balance is currently $800. What is the maximum amount he can now spend on this credit card?
$200
$800
$1,000
$1,800
Which factor could explain why two people with the same amount of debt feel differently about it?
Their preferred smartphone brand
Income and other financial obligations
Weather in their city
The color of their credit card
In an installment loan, what does “installment” mean?
Interest rate changes monthly
Payment due is the same amount from month to month; loan is amortized
Payments are only interest until the last month
The loan has no fixed payment schedule
What does a fixed rate on a loan indicate?
The interest rate stays the same for the entire length of the loan
The lender can change the interest rate at any time
Payments will always decrease over time
Only the first payment amount is fixed
Why should you consider both the Annual Fee and APR when choosing a credit card?
Annual Fee is a one-time charge and APR never affects costs
Annual Fee is paid every year and can outweigh rewards; APR determines interest costs if you carry a balance
APR only matters for cash advances, not purchases
Neither affects what you pay over time
A 21-year-old with a $3,000 monthly income has fixed expenses of $1,500 and $500 in student loan payments. She needs a car and plans to finance it with an auto loan. Which advice best supports affordability and lower total interest on the auto loan?
Choose a longer loan term to reduce total interest and free up cash
Shop banks and dealerships to secure the lowest APR and ensure the payment fits her budget
Skip budgeting because her income exceeds fixed costs
Accept the first loan offer if monthly payments look low
Which of the following actions is most likely to help you qualify for a lower interest rate on a personal loan?
Making only the minimum payment on your credit cards
Applying for multiple loans at once
Choosing a longer loan term
Improving your credit score before applying
What is the main difference between a secured loan and an unsecured loan?
Unsecured loans always have lower interest rates
Secured loans require collateral, while unsecured loans do not
Secured loans are only available to businesses
Unsecured loans require a down payment
Which of the following best describes the benefit of making extra payments on a fixed-rate mortgage?
It extends the loan term
It increases the interest rate on the loan
It reduces the total interest paid over the life of the loan
It eliminates the need for a down payment
What is one potential consequence for borrowers who fall victim to predatory lending practices?
Access to government grants
Cycle of debt and possible loss of assets
Lower total repayment amount
Improved credit score
Which group is most often targeted by predatory lenders?
Retirees with substantial savings
Individuals with excellent credit
People with stable, high incomes
Borrowers with poor credit or limited financial knowledge
