Unit 5/6 Test - Credit

Last updated over 1 year ago

33 questions

1

I am a type of credit card that requires cardholders to make a security deposit equal to the credit limit on their account. Due to this deposit requirement, I am often a good choice for young people looking to establish a credit history. Which financial product am I?

Rewards credit card

Standard credit card

Secured credit card

Overdraft credit card

Each of the following financial products will help you build a credit history EXCEPT...

Debit card

Credit card

Auto loan

Secured credit card

Which of the following statements below is TRUE?

The cardholder is carrying a balance of $900 over from the last period.

If the cardholder makes her minimum payment of $35.00 by the due date, she will NOT be charged interest on her balances.

The cardholder was charged interest on her balances for the last period because she made her payment on time.

If the cardholder pays $523.20 by the due date on the bill, she will pay NO interest to the credit card company.

Based on her current balance, how much credit does this cardholder have available to use?

About $1,600

$0

About $500

$2,100

Which of the following statements comparing credit and debit cards is TRUE?

Far more businesses accept credit cards than debit cards

With debit cards, you're spending your own money at point of sale, while with credit cards, you're borrowing the money and promising to pay it back eventually

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

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

Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash

The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan

If you are having trouble making auto loan payments, and are really following a tight budget, which recommendation below represents the WORST advice?

Reduce spending in some other area of your budget so you can direct more funds toward debt payments

Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms

Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control

Find an extra source of income by taking a second job, working longer hours, asking for a raise, etc

When loans are amortized, monthly payments are _ , while the interest portion of the monthly payment and the principle portion of the monthly payment _ over time.

Variable (changing), Decreases, Increases

Variable (changing), Decreases, Decreases

Constant (the same), Decreases, Increases

Constant (the same), Increases, Increases

The shorter your term length, the _ your monthly payments, and the _ the total interest you will pay.

higher, higher

lower, lower

higher, lower

lower, higher

Which of the following is true about fixed and adjustable-rate mortgages?

Fixed-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner

Fixed-rate mortgages have a constant payment every month, but an interest rate that increases during the term of the loan

Adjustable-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner

They 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 interest charges?

Making the minimum payment (3% of your credit card balance) every month on time

Paying 20% of your credit card balance every month on time

Paying off your credit card bill in full every month

Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

Elizabeth is considering buying a $30,000 car. Which of these financing options will likely lead to the LOWEST monthly payment?

$3000 down payment, 6% interest, 60 months

$3000 down payment, 6% interest, 84 months

$0 down payment, 0% interest, 36 months

$0 down payment, 6% interest, 60 months

You have been working for five years after college and are ready to buy your first home. Homes in the area you want to live in cost $550,000. The biggest mortgage you can afford is $300,000. What is the down payment you will need to pay?

$0

$250,000

$200,000

$300,000

Reading through a credit card disclosure (aka the Schumer Box), you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true?

Your APR will be within that range, depending on the strength of your credit history

With credit card APRs, cardholders like higher APRs because they earn more

The APR on credit cards is usually fixed so it won't be adjusted as long as you are a cardholder

When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed

What is an advantage of using a credit card?

If you pay off your balances every month in full, it's like getting a short-term interest-free loan

If you need to carry a balance, the interest rates are generally quite low (less than 5%)

Since it is tied directly to your checking account, it prevents you from spending money you do not have

It will not affect your credit score or credit history

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 make your credit card payment before the due date, you will be charged interest regardless of the amount of your payment

If you pay your previous balance in full after the due date, the credit card company will not charge you interest

The 25 days after the end of the billing cycle is referred to as the grace period

You see on a commercial that OrangeCo is offering a credit card with a 5% cashback program for all cardholders. What is ONE question you might ask to evaluate how good this offer is?

Can I get a debit card along with a new credit card?

Who does OrangeCo use as their spokesperson in the commercial?

Can I choose the picture that is on the front of my credit card?

Is there an annual fee on this credit card and how much is it?

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?

Chuck made a larger down payment, so his monthly payments are larger.

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 has a lower credit score, so his interest payments are also lower.

Select the statement below that accurately describes a characteristic of a credit card.

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

You owe the same payment every month

They do not charge interest

Which is of the following statements is CORRECT about secured loans?

In the event of default, the borrower loses nothing except for the down payment

They require collateral, in the form of assets like a car or a home, to be exchanged for the loan

They usually have higher interest rates as compared with unsecured loans

They are an example of a credit card

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

Become an authorized user on a credit card used by your parent or guardian

Open and start using a secured credit card

Open a checking account, and start using a debit card

Which of the following statements is true about this Schumer Box?

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%

You may be charged an APR as high as 28.99% for a late payment

Depending on your creditworthiness, the APR for a borrower will always either be 8.99%, 10.99% or 12.99%

When purchasing a car, a downpayment will do which of the following?

Increase the amount of your loan and increase your monthly payments

Lower the amount of your loan and increase your monthly payments

Lower the amount of your loan and lower your monthly payments

Increase the amount of your loan and lower your monthly payments

Which is an example of the difference between installment loans and revolving credit?

A car payment and a credit card are examples of revolving credit

A car payment is an example of an installment loan and a credit card is an example of revolving credit

Both car payments and credit cards are examples of installment loans

A car payment is an example of revolving credit and a credit card is an example of an installment loan

What is true of payday loans?

They provide needed cash immediately but have a very high interest rate

The interest rate is low since it is tied to your payday

This is a great way to build your credit history

They are FDIC insured

For this section, you will use the loan calculator and answer questions about taking out a loan of $20,000 for 4 years at 5% APR. The mortgage calculator can be found here: 

Mortgage Calculator

1

What is your monthly payment? ($20,000 loan, 4 years, 5% APR) (EXACT ANSWERS ONLY. DO NOT ROUND YOUR ANSWER)

1

In your first payment, the amount of interest you pay is:

1

In your first payment, the amount towards your principal is:

1

In total, how much interest will you pay over the life of this loan?

1

If you made a down payment of $4,000, what is the amount you would need to finance?

1

What will your monthly payments be with a down payment of $4,000 on this loan?

1

How much money will you pay in interest over the course of the loan after a $4,000 down payment?

Your friend confides in you that she has a low credit score. What is one way for her to improve her credit score?

I am a type of credit card that requires cardholders to make a security deposit equal to the credit limit on their account. Due to this deposit requirement, I am often a good choice for young people looking to establish a credit history. Which financial product am I?

Rewards credit card

Standard credit card

Secured credit card

Overdraft credit card

Each of the following financial products will help you build a credit history EXCEPT...

Debit card

Credit card

Auto loan

Secured credit card

Which of the following statements below is TRUE?

The cardholder is carrying a balance of $900 over from the last period.

If the cardholder makes her minimum payment of $35.00 by the due date, she will NOT be charged interest on her balances.

The cardholder was charged interest on her balances for the last period because she made her payment on time.

If the cardholder pays $523.20 by the due date on the bill, she will pay NO interest to the credit card company.

Based on her current balance, how much credit does this cardholder have available to use?

About $1,600

$0

About $500

$2,100

Which of the following statements comparing credit and debit cards is TRUE?

Far more businesses accept credit cards than debit cards

With debit cards, you're spending your own money at point of sale, while with credit cards, you're borrowing the money and promising to pay it back eventually

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

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

Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash

The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan

If you are having trouble making auto loan payments, and are really following a tight budget, which recommendation below represents the WORST advice?

Reduce spending in some other area of your budget so you can direct more funds toward debt payments

Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms

Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control

Find an extra source of income by taking a second job, working longer hours, asking for a raise, etc

When loans are amortized, monthly payments are _______ , while the interest portion of the monthly payment ________  and the principle portion of the monthly payment _______  over time.

Variable (changing), Decreases, Increases

Variable (changing), Decreases, Decreases

Constant (the same), Decreases, Increases

Constant (the same), Increases, Increases

The shorter your term length, the _______   your monthly payments, and the _______  the total interest you will pay.

higher, higher

lower, lower

higher, lower

lower, higher

Which of the following is true about fixed and adjustable-rate mortgages?

Fixed-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner

Fixed-rate mortgages have a constant payment every month, but an interest rate that increases during the term of the loan

Adjustable-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner

They 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 interest charges?

Making the minimum payment (3% of your credit card balance) every month on time

Paying 20% of your credit card balance every month on time

Paying off your credit card bill in full every month

Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

Elizabeth is considering buying a $30,000 car.  Which of these financing options will likely lead to the LOWEST monthly payment?

$3000 down payment, 6% interest, 60 months

$3000 down payment, 6% interest, 84 months

$0 down payment, 0% interest, 36 months

$0 down payment, 6% interest, 60 months

You have been working for five years after college and are ready to buy your first home.  Homes in the area you want to live in cost $550,000.  The biggest mortgage you can afford is $300,000. What is the down payment you will need to pay?

$0

$250,000

$200,000

$300,000

Reading through a credit card disclosure (aka the Schumer Box), you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true?

Your APR will be within that range, depending on the strength of your credit history

With credit card APRs, cardholders like higher APRs because they earn more

The APR on credit cards is usually fixed so it won't be adjusted as long as you are a cardholder

When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed

What is an advantage of using a credit card?

If you pay off your balances every month in full, it's like getting a short-term interest-free loan

If you need to carry a balance, the interest rates are generally quite low (less than 5%)

Since it is tied directly to your checking account, it prevents you from spending money you do not have

It will not affect your credit score or credit history

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 make your credit card payment before the due date, you will be charged interest regardless of the amount of your payment

If you pay your previous balance in full after the due date, the credit card company will not charge you interest

The 25 days after the end of the billing cycle is referred to as the grace period

You see on a commercial that OrangeCo is offering a credit card with a 5% cashback program for all cardholders. What is ONE question you might ask to evaluate how good this offer is?

Can I get a debit card along with a new credit card?

Who does OrangeCo use as their spokesperson in the commercial?

Can I choose the picture that is on the front of my credit card?

Is there an annual fee on this credit card and how much is it?

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?

Chuck made a larger down payment, so his monthly payments are larger.

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 has a lower credit score, so his interest payments are also lower.

Select the statement below that accurately describes a characteristic of a credit card.

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

You owe the same payment every month

They do not charge interest

Which is of the following statements is CORRECT about secured loans?

In the event of default, the borrower loses nothing except for the down payment

They require collateral, in the form of assets like a car or a home, to be exchanged for the loan

They usually have higher interest rates as compared with unsecured loans

They are an example of a credit card

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

Become an authorized user on a credit card used by your parent or guardian

Open and start using a secured credit card

Open a checking account, and start using a debit card

Which of the following statements is true about this Schumer Box?

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%

You may be charged an APR as high as 28.99% for a late payment

Depending on your creditworthiness, the APR for a borrower will always either be 8.99%, 10.99% or 12.99%

When purchasing a car, a downpayment will do which of the following?

Increase the amount of your loan and increase your monthly payments

Lower the amount of your loan and increase your monthly payments

Lower the amount of your loan and lower your monthly payments

Increase the amount of your loan and lower your monthly payments

Which is an example of the difference between installment loans and revolving credit?

A car payment and a credit card are examples of revolving credit

A car payment is an example of an installment loan and a credit card is an example of revolving credit

Both car payments and credit cards are examples of installment loans

A car payment is an example of revolving credit and a credit card is an example of an installment loan

What is true of payday loans?

They provide needed cash immediately but have a very high interest rate

The interest rate is low since it is tied to your payday

This is a great way to build your credit history

They are FDIC insured

For this section, you will use the loan calculator and answer questions about taking out a loan of $20,000 for 4 years at 5% APR. The mortgage calculator can be found here: 

Mortgage Calculator