Wk 13 Unit 4 Test Types of Credit

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Jordan is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true about these types of cards?

A credit card has no spending limit, but a debit card and prepaid debit card do.

A debit card allows Jordan to spend only the money they have in their bank account, whereas a credit card allows them to borrow money up to a limit.

A prepaid debit card builds Jordan's credit score, just like a credit card does.

All three cards function identically and have the same benefits.

Which of the following best describes the purpose of a credit score?

To determine the exact interest rate for a person’s mortgage

To show how much money a person has saved

To track the number of bank accounts a person holds

To predict the likelihood of someone repaying a loan

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

Debit cards allow you to borrow money, while credit cards only let you spend money in your bank account.

Debit cards require monthly payments, while credit cards do not.

Both credit and debit cards always charge interest on purchases.

Credit cards can help build your credit score, while debit cards generally do not affect your credit score.

Which of the following is most likely to represent a fixed-rate, secured debt?

Personal line of credit

Payday loan

Credit card

Mortgage

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?

It increases the loan's interest rate, reducing the total interest paid.

It increases the loan balance, allowing for more future borrowing.

It reduces the loan's interest rate, saving money over time.

It shortens the loan term and reduces the total interest paid.

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

Consider refinancing your loan to secure a lower interest rate or longer term.

Ignore the payments entirely and hope the lender doesn’t take further action.

Contact your lender to discuss options for temporarily reducing or deferring payments.

Sell the vehicle and use the funds to pay off the loan or reduce the balance.

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.

Fixed; increases; decreases

Variable; decreases; increases

Variable; increases; decreases

Fixed; decreases; increases

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

fixed-rate mortgage has an interest rate that can change periodically, while an adjustable-rate mortgage has a fixed interest rate for the life of the loan.

Both fixed-rate and adjustable-rate mortgages have the same monthly payments throughout the life of the loan.

Adjustable-rate mortgages always have lower interest rates than fixed-rate mortgages.

A fixed-rate mortgage has a constant interest rate for the life of the loan, while an adjustable-rate mortgage's interest rate can change over time.

Which of these credit payback strategies would lead to the HIGHEST overall cost?

Consolidating debt with a low-interest loan

Paying the balance in full each month

Making only the minimum payment each month

Paying more than the minimum payment, but less than the full balance

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?

Denise paid back the loan early, which reduced the total interest paid.

Denise paid off the loan in full in one payment, but the loan had a high interest rate.

Denise made only the minimum payments on the loan each month, resulting in high fees and interest.

The payday loan was paid off in full in one month with no extra fees.

Taylor is about to go car shopping, and she has $7,000 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 $28,000. If her top priority is having the lowest monthly payments possible, which advice should she follow?

Buy the car outright to avoid monthly payments altogether.

Buy a less expensive car with the same model to reduce her loan balance and monthly payments.

Use her $7,000 for the down payment, even if it means larger monthly payments, to reduce the loan amount.

Make the smallest down payment possible to keep her emergency fund intact and secure a larger loan.

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?

The APR is variable and can range anywhere between 9.99% and 23.99% based on the cardholder’s creditworthiness or market conditions.

The APR will always be 23.99% if the cardholder misses any payments.

The APR is fixed and will remain at 9.99% for the life of the balance.

The APR listed is for cash advances only.

What is an advantage of using a credit card?

Credit cards automatically deduct payments from your bank account on time.

Credit cards do not charge any interest or fees, regardless of your balance.

Credit cards offer rewards, such as cash back or travel points, for purchases.

You can only spend the exact amount of money you have in your bank account.

Sarah 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?

High-risk debt because it involves speculative investments in real estate.

Short-term debt because it is paid off within a few years.

Secured debt because the loan is backed by the value of the home.

Unsecured debt because the mortgage is not tied to any collateral.

A loan with a shorter term length will have monthly payments, and you will pay in total interest.

Higher; less

Lower; less

Higher; more

Lower; more

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

Credit cards require you to pay the full balance by the due date, or they will charge a penalty fee.

Credit cards provide you with the ability to withdraw cash from an ATM without fees.

Credit cards do not have an interest rate on purchases.

Credit cards allow you to borrow money up to a limit and pay it back later, often with interest.

Which of the following statements is CORRECT about secured loans?

Secured loans have no interest charges because they are backed by collateral.

Secured loans are typically riskier for the lender because they are not backed by assets.

Secured loans are backed by collateral, such as a home or car, which the lender can seize if the borrower defaults.

Secured loans do not require any type of collateral or down payment.

An excellent credit score will help with which aspect of car financing?

Obtaining a car loan with a lower interest rate and better loan terms.

Securing a larger loan amount, regardless of the car’s price.

Getting approved for a car loan with higher interest rates.

Avoiding any down payment requirement for the car loan.

As a young adult, all of the following are good strategies for building credit, EXCEPT:

Paying your bills on time, including credit card bills and loans.

Regularly checking your credit report for errors and monitoring your credit score.

Keeping credit card balances low relative to the credit limit (credit utilization).

Applying for multiple credit cards to maximize your available credit limit.

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 made a smaller down payment than Chuck, resulting in a larger loan balance and higher payments.

Amy has a higher credit score, which allowed her to secure a mortgage with a higher interest rate.

Amy chose a shorter loan term than Chuck, leading to higher monthly payments.

Chuck opted for a loan with a variable interest rate, while Amy secured a fixed-rate mortgage.

Why are payday loans so much easier to qualify for than traditional bank loans?

Payday loans have fewer eligibility requirements and are based on your income rather than your credit history.

Payday loans are often secured by collateral, making them easier to approve.

Payday loans have longer repayment terms, making it easier to qualify.

Payday loans require a higher credit score than traditional bank loans.

After graduating, Lisa tells her father that she plans to buy her first home within two years. Her father explains that she’ll need a down payment before purchasing the home. What is a down payment?

A monthly fee paid to the bank for maintaining the mortgage

A loan taken out to cover the cost of the house

The total amount of money needed to buy the house

A percentage of the home’s price paid upfront to secure the purchase

Maya has a credit card with a $1,500 credit limit. Her current outstanding balance is $1,200. What is the maximum amount she can now spend on this credit card?

$1,500

$300

$200

$100

Rachel is reviewing the Schumer Box for a new credit card she’s considering. Which of the following statements is true based on the information in the Schumer Box?

The Schumer Box lists the credit card’s annual percentage rate (APR) for purchases, but not for cash advances.

The Schumer Box includes information on fees, such as late fees and balance transfer fees.

The Schumer Box is required only for credit cards with annual fees.

The Schumer Box provides only an estimate of monthly payments for the first six months.

Why might credit card companies prefer that their cardholders make only the minimum monthly payment each month rather than paying their total balance in full?

It allows cardholders to avoid paying interest charges.

It lowers the cardholder’s available credit limit permanently.

It increases the interest earned by the credit card company over time.

It reduces the credit card company's overall profit.

Jordan is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true about these types of cards?

A credit card has no spending limit, but a debit card and prepaid debit card do.

A debit card allows Jordan to spend only the money they have in their bank account, whereas a credit card allows them to borrow money up to a limit.

A prepaid debit card builds Jordan's credit score, just like a credit card does.

All three cards function identically and have the same benefits.

Which of the following best describes the purpose of a credit score?

To determine the exact interest rate for a person’s mortgage

To show how much money a person has saved

To track the number of bank accounts a person holds

To predict the likelihood of someone repaying a loan

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

Debit cards allow you to borrow money, while credit cards only let you spend money in your bank account.

Debit cards require monthly payments, while credit cards do not.

Both credit and debit cards always charge interest on purchases.

Credit cards can help build your credit score, while debit cards generally do not affect your credit score.

Which of the following is most likely to represent a fixed-rate, secured debt?

Personal line of credit

Payday loan

Credit card

Mortgage

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?

It increases the loan's interest rate, reducing the total interest paid.

It increases the loan balance, allowing for more future borrowing.

It reduces the loan's interest rate, saving money over time.

It shortens the loan term and reduces the total interest paid.

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

Consider refinancing your loan to secure a lower interest rate or longer term.

Ignore the payments entirely and hope the lender doesn’t take further action.

Contact your lender to discuss options for temporarily reducing or deferring payments.

Sell the vehicle and use the funds to pay off the loan or reduce the balance.

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.

Fixed; increases; decreases

Variable; decreases; increases

Variable; increases; decreases

Fixed; decreases; increases

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

fixed-rate mortgage has an interest rate that can change periodically, while an adjustable-rate mortgage has a fixed interest rate for the life of the loan.

Both fixed-rate and adjustable-rate mortgages have the same monthly payments throughout the life of the loan.

Adjustable-rate mortgages always have lower interest rates than fixed-rate mortgages.

A fixed-rate mortgage has a constant interest rate for the life of the loan, while an adjustable-rate mortgage's interest rate can change over time.

Which of these credit payback strategies would lead to the HIGHEST overall cost?

Consolidating debt with a low-interest loan

Paying the balance in full each month

Making only the minimum payment each month

Paying more than the minimum payment, but less than the full balance

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?

Denise paid back the loan early, which reduced the total interest paid.

Denise paid off the loan in full in one payment, but the loan had a high interest rate.

Denise made only the minimum payments on the loan each month, resulting in high fees and interest.

The payday loan was paid off in full in one month with no extra fees.

Taylor is about to go car shopping, and she has $7,000 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 $28,000. If her top priority is having the lowest monthly payments possible, which advice should she follow?

Buy the car outright to avoid monthly payments altogether.

Buy a less expensive car with the same model to reduce her loan balance and monthly payments.

Use her $7,000 for the down payment, even if it means larger monthly payments, to reduce the loan amount.

Make the smallest down payment possible to keep her emergency fund intact and secure a larger loan.

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?

The APR is variable and can range anywhere between 9.99% and 23.99% based on the cardholder’s creditworthiness or market conditions.

The APR will always be 23.99% if the cardholder misses any payments.

The APR is fixed and will remain at 9.99% for the life of the balance.

The APR listed is for cash advances only.

What is an advantage of using a credit card?

Credit cards automatically deduct payments from your bank account on time.

Credit cards do not charge any interest or fees, regardless of your balance.

Credit cards offer rewards, such as cash back or travel points, for purchases.

You can only spend the exact amount of money you have in your bank account.

Sarah 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?

High-risk debt because it involves speculative investments in real estate.

Short-term debt because it is paid off within a few years.

Secured debt because the loan is backed by the value of the home.

Unsecured debt because the mortgage is not tied to any collateral.

A loan with a shorter term length will have __________ monthly payments, and you will pay __________ in total interest.

Higher; less

Lower; less

Higher; more

Lower; more

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

Credit cards require you to pay the full balance by the due date, or they will charge a penalty fee.

Credit cards provide you with the ability to withdraw cash from an ATM without fees.

Credit cards do not have an interest rate on purchases.

Credit cards allow you to borrow money up to a limit and pay it back later, often with interest.

Which of the following statements is CORRECT about secured loans?

Secured loans have no interest charges because they are backed by collateral.

Secured loans are typically riskier for the lender because they are not backed by assets.

Secured loans are backed by collateral, such as a home or car, which the lender can seize if the borrower defaults.

Secured loans do not require any type of collateral or down payment.

An excellent credit score will help with which aspect of car financing?

Obtaining a car loan with a lower interest rate and better loan terms.

Securing a larger loan amount, regardless of the car’s price.

Getting approved for a car loan with higher interest rates.

Avoiding any down payment requirement for the car loan.

As a young adult, all of the following are good strategies for building credit, EXCEPT:

Paying your bills on time, including credit card bills and loans.

Regularly checking your credit report for errors and monitoring your credit score.

Keeping credit card balances low relative to the credit limit (credit utilization).

Applying for multiple credit cards to maximize your available credit limit.

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 made a smaller down payment than Chuck, resulting in a larger loan balance and higher payments.

Amy has a higher credit score, which allowed her to secure a mortgage with a higher interest rate.

Amy chose a shorter loan term than Chuck, leading to higher monthly payments.

Chuck opted for a loan with a variable interest rate, while Amy secured a fixed-rate mortgage.

Why are payday loans so much easier to qualify for than traditional bank loans?

Payday loans have fewer eligibility requirements and are based on your income rather than your credit history.

Payday loans are often secured by collateral, making them easier to approve.

Payday loans have longer repayment terms, making it easier to qualify.

Payday loans require a higher credit score than traditional bank loans.

After graduating, Lisa tells her father that she plans to buy her first home within two years. Her father explains that she’ll need a down payment before purchasing the home. What is a down payment?

A monthly fee paid to the bank for maintaining the mortgage

A loan taken out to cover the cost of the house

The total amount of money needed to buy the house

A percentage of the home’s price paid upfront to secure the purchase

Maya has a credit card with a $1,500 credit limit. Her current outstanding balance is $1,200. What is the maximum amount she can now spend on this credit card?

$1,500

$300

$200

$100

Rachel is reviewing the Schumer Box for a new credit card she’s considering. Which of the following statements is true based on the information in the Schumer Box?

The Schumer Box lists the credit card’s annual percentage rate (APR) for purchases, but not for cash advances.

The Schumer Box includes information on fees, such as late fees and balance transfer fees.

The Schumer Box is required only for credit cards with annual fees.

The Schumer Box provides only an estimate of monthly payments for the first six months.

Why might credit card companies prefer that their cardholders make only the minimum monthly payment each month rather than paying their total balance in full?

It allows cardholders to avoid paying interest charges.

It lowers the cardholder’s available credit limit permanently.

It increases the interest earned by the credit card company over time.

It reduces the credit card company's overall profit.