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WorksheetsCredit Unit Test Review
Total questions: 61
Worksheet time: 31mins
Which of the following are the three main components included in the details of any loan?
The principal, the interest rate, and the loan term.
The down payment, the collateral, and the credit score.
The monthly payment, the cosigner, and the loan amount.
The interest rate, the credit score, and the payment history.
Why are secured loans considered less risky to the lender?
If the borrower does not make payments, the lender can repossess the item.
The borrower always pays on time.
The interest rate is always lower.
The loan amount is always smaller.
What is one way to decrease your interest rate on a loan?
Having a good credit score, making a larger down payment, and finding a cosigner with good credit.
Paying late every month.
Borrowing more money than needed.
Ignoring your credit score.
Which of the following is a feature of a variable loan?
Typically starts with a lower interest rate than a fixed rate loan.
Interest rate remains constant throughout the loan.
Monthly payment for principal and interest remains consistent.
Provides predictability so you always know how much is due.
Which of the following is NOT a feature of a fixed loan?
Interest rate can increase or decrease over the course of the loan.
Interest rate remains constant throughout the length of the loan.
Monthly payment for principal and interest remains consistent.
They provide predictability so you always know how much is due.
What is the definition of Net Worth?
A measurement of your assets minus your liabilities.
The total amount of money you earn in a year.
The amount you owe on your credit cards.
The value of your car and house combined.
What is the equation used to determine Net Worth?
Net worth = Assets - Liabilities.
Net worth = Income - Expenses.
Net worth = Principal + Interest.
Net worth = Assets + Liabilities.
Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?
Principal
Interest
Term
Collateral
Which of the following is an example of an installment loan?
Home mortgage
Credit card
Store gift card
Checking account
Which of the following is NOT an example of an installment loan?
Credit card
Auto loan
Student loan
Home Equity Loan
What can happen if you fail to make payments on a secured loan with a bank or credit union?
The lender can repossess the item such as a car or house.
You will only be charged a late fee.
Your credit score will not be affected.
The loan will be automatically forgiven.
Which of the following best describes an installment loan at a fixed rate for a secured debt?
Payment is the same each month, interest rate stays the same, and the loan is for a specific item that can be repossessed.
Payment changes each month, interest rate varies, and the loan is unsecured.
Payment is due only at the end, interest rate is variable, and the loan is for any purpose.
Payment is optional, interest rate is fixed, and the loan cannot be repossessed.
Which of the following is a detail you should understand about how debit cards differ from other cards?
Spending limit is set by how much is in your checking account.
They help build your credit score.
They always have rewards programs.
They can be used to borrow money.
Which of the following is a detail you should understand about how credit cards differ from other cards?
They help build credit score.
They are always protected by FDIC.
They have no interest charges.
They cannot be used at ATMs.
Which of the following is a detail you should understand about how prepaid debit cards differ from other cards?
Spending limit is set by how much money is preloaded onto the card.
They always help build your credit score.
They have no fees.
They can be used to access financial accounts if lost or stolen.
Why might young adults, in particular, value credit in case of emergency?
It takes time to build up an emergency fund of savings.
They always have high salaries.
They never have student loans.
They do not need to budget.
If you’re trying to gain access to a credit card before you turn 21, which option relies on the support of a parent or guardian?
Get a co-signer.
Chip away at student loans.
Get a secured credit card.
Apply for a mortgage.
If you’re trying to gain access to a credit card before you turn 21, which option does NOT rely on the support of a parent or guardian?
Get a secured credit card.
Get a co-signer.
Become an authorized user on another person’s credit card.
Ask a parent to apply for you.
Which of the following is a factor that directly impacts your total cost of using a credit card?
Annual fee
Minimum balance
Number of purchases
Type of store
How do annual fees impact credit cards?
Annual fees can lower your available credit immediately and are billed yearly, typically on the date the card was first issued to you.
Annual fees increase your credit limit every year.
Annual fees are only charged if you miss a payment.
Annual fees are optional and can be avoided by not using the card.
What does a grace period mean to a credit card account?
The number of days between a borrower's statement date and when payment is due, often without accruing interest.
The time when you can use your card without any spending limit.
The period when you must pay a penalty fee.
The time after your card expires before you need to renew it.
What is a Schumer Box and why is it important to your understanding of a credit offer?
A standard table that legally must appear in a credit card agreement showing basic information about the card's rates and fees, helping you compare credit offers.
A rewards program for frequent credit card users.
A box where you store your credit cards.
A section in your credit report listing your credit score.
Which of the following is NOT typically listed in a Schumer Box?
APR (Annual Percentage Rate)
Penalty Due Dates
Cost of Penalty Fees
Your monthly income
Why is it beneficial for a young adult to establish credit?
It can help qualify for larger loans in the future and provide emergency access to spending power.
It guarantees you will never pay interest.
It eliminates the need for a bank account.
It automatically increases your salary.
Why is it important to consider the Annual Fee and APR of credit card offers when selecting a credit card?
Because the annual fee is a yearly cost and the APR determines the interest you pay if you carry a balance.
Because the annual fee is optional and APR is always zero.
Because both are only important for business credit cards.
Because they only affect your credit score, not your payments.
A fully amortized payment is split into which two components?
The principal and the interest
The down payment and the fees
The loan amount and the taxes
The interest and the insurance
Casey has an amortized loan payment of $400, and the interest they owe for that month is $50. By how much would Casey pay down the principal?
$350
$400
$50
$450
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?
You will pay your loan off faster, pay less total interest, and pay less money overall
You will increase your credit card limit
You will get a higher interest rate
You will have to pay more in fees
Many “buy now, pay later” loans have no interest or low-interest. How do they make a profit?
Business owners pay a fee on each transaction
They charge high interest rates to customers
They sell your information to advertisers
They require a large down payment
If you do not make your loan payments on time, when taking out a “buy now, pay later” loan, what will happen?
You’ll be charged a late fee & it can hurt your credit
You will get a discount on your next purchase
You will receive a reward
You will not have to pay the loan back
As time passes on your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?
The interest portion will shrink.
The interest portion will increase.
The interest portion will stay the same.
The interest portion will double.
A loan with a shorter term length will have ________ monthly payments, and you will pay ________ in total interest.
higher, less
lower, more
higher, more
lower, less
The average APR for a payday loan is closest to what rate?
The average annual percentage rate (APR) for a payday loan is 372%–400%.
10%–15%
50%–60%
100%–150%
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.
They require a high credit score.
They require a large down payment.
They require collateral.
How can making a larger down payment save you money when purchasing a car?
Your monthly payment will be lower and you will pay less interest over the life of the loan.
You will get a longer loan term.
You will have to pay more in taxes.
You will get a higher interest rate.
How would having a higher credit score help when buying a car?
Will help you obtain a lower interest rate on an auto loan.
Will increase your monthly payment.
Will require a larger down payment.
Will make you ineligible for a loan.
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.
Less
More
The same
No
What is the main difference between leasing and buying a vehicle?
Leasing a car means you own it after the payments are done, buying means you return it.
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. Buying a car is making monthly payments for a car for a fixed period of time, but then you continue owning it once the loan is paid in full.
Leasing a car is always more expensive than buying.
Buying a car means you never make monthly payments.
What is the first step in purchasing a new vehicle that you should take?
Take multiple vehicles for a test drive to see what features you like best
Create a budget and check your credit score
Get an insurance quote for your new vehicle
Decide which color vehicle you want most
What are two reasons someone might purposely choose a higher monthly payment when buying a car?
To pay the loan off more quickly and reduce their overall debt load more quickly
To pay more interest and have a longer loan term
To get a more expensive car and pay less interest
To avoid making a down payment and increase the loan principal
Carlo 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?
$33,000
$25,000
$4,000
$29,000
If you are offered two auto loan options with the same principal and interest rate, but one is a 48-month loan and one is a 72-month loan, which option will cost you the least amount of money overall?
The 72-month loan will cost less money overall.
The 48-month loan will cost less money overall.
Both loans will cost the same.
The 48-month loan will cost more money overall.
Auto loans are typically a fixed rate, secured debt. True or False?
True
False
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
How does inflation impact the purchasing power of your money over time?
Inflation causes the price of goods/services to decrease, so your money buys more.
Inflation causes the price of goods/services to increase, so the relative purchasing power of the same amount of money decreases.
Inflation has no effect on the purchasing power of money.
Inflation causes wages to always increase faster than prices.
Why do you need to take inflation into account even if both prices and wages increase over time?
Prices and wages always increase at the same rate.
The increases in prices of goods/services and wages do not necessarily happen at the same rate.
Wages always increase faster than prices.
Inflation only affects prices, not wages.
How can you counteract the impact of inflation on your savings?
Keep all your money in cash at home.
Invest in savings accounts or other options where the rate of return is at least as high as the rate of inflation.
Spend all your money quickly before prices rise.
Only save in accounts with no interest.
How does a credit card work?
The credit card company gives you free money.
The credit card company extends you a line of credit, allowing you to purchase items and pay the balance in full or make minimum payments each month.
You can only use a credit card if you have the full amount in your bank account.
Credit cards are only for emergencies.
What is the advantage of paying your credit card balance in full each month?
You get more reward points.
You avoid paying any interest and fees.
You can increase your credit limit.
You can skip payments in the future.
Why is it more difficult to get out of debt when only paying the minimum payment on a credit card?
The minimum payment is always too high.
The majority of your minimum payment goes toward interest and finance charges, with only a small amount going toward the principal.
The credit card company charges extra fees for minimum payments.
Minimum payments are not allowed on most credit cards.
If you buy a 1000 dollar bicycle, which credit card payoff strategy will result in your paying the LEAST total amount?
Pay the minimum monthly payment.
Pay 100 dollars per month for 10 months.
Pay 250 dollars per month until it’s paid off.
Don’t make any payments until you have the full 1000 dollars saved.
If your credit card limit is 800 dollars and your outstanding balance is 725 dollars, what is the largest amount you can charge on that card in the upcoming month?
800 dollars
725 dollars
100 dollars
75 dollars
With credit cards, what is the only way for you to completely avoid paying any interest?
Making only the minimum payment each month
Paying late fees
Making full payments on-time every month is the only way to avoid interest charges.
Using the card only for small purchases
Ethan has a credit card with a $1000 credit limit. His outstanding balance is currently $800. He just made a payment of $200. What is the maximum amount he will be able to spend on this credit card next month?
$600
$800
$400
$1000
Why would credit card companies prefer that their cardholders make the minimum monthly payment every month rather than paying their total balance in full?
It helps cardholders build credit faster
This enables the credit card company to make more money.
It reduces the risk of fraud
It increases the cardholder’s credit limit
What is one downside of an adjustable-rate mortgage compared to a fixed-rate mortgage?
Adjustable rate loans have an interest rate that changes along with the broader economy and markets, making your interest rate and the amount of your monthly payment variable; you risk not being able to afford your monthly payments if interest rates rise.
Adjustable-rate mortgages always have higher initial interest rates.
Adjustable-rate mortgages require a larger down payment.
Adjustable-rate mortgages are only available for short-term loans.
Why is choosing an appropriate mortgage potentially even more important than choosing an appropriate auto loan?
Homes are much less expensive than cars.
Mortgages are a much shorter commitment than auto loans.
Homes are much more expensive, and mortgages are a much longer commitment compared to auto loans.
It is easier to repossess a house than a car.
What causes the total amount of interest paid on a mortgage to be so much higher than on other types of debts?
The interest rate is always higher on mortgages.
The principal on a mortgage is high and the term is long. You are borrowing a larger amount and paying over a longer time period.
Mortgages have more fees than other loans.
Mortgages require a larger down payment.
Why might it be a good reason to choose a 30-year, fixed-rate mortgage instead of an adjustable-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
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
What is a down payment when buying a house or condo?
A large sum of money you pay when taking out a mortgage so that the principal of your loan is smaller
The monthly payment you make for your mortgage
The interest rate charged on your mortgage
The total cost of the house including taxes
