Unit 2 Review (Types of Credit)

Choose the option that best completes this sentence: When using a credit card…

• You will pay interest whether or not you pay your bill every month.
• You are transferring money from your savings account directly to another party.
• You are getting a short-term loan to allow you to purchase an item now which you can pay for later.
• You always have the option to wait to make a payment because late payments don’t affect your credit.

Which statement best describes the basic relationship between savers and borrowers at a traditional bank?

• The bank pays interest to the savers and gives loans at the SAME interest rates to the borrowers, so it all balances out.
• The bank pays interest to the savers and gives loans at a HIGHER interest rate, so that the bank makes money
• The bank pays interest to the savers and gives loans at a LOWER interest rate, so the bank makes money
• The bank makes no money from savers or borrowers

Which of the following is usually a secured debt?

• Student loan
• Auto loan
• Credit card
• Personal loan

Which of the following statements is TRUE?

• To avoid appearing biased, a bank or other lender must offer the same interest rate to all of its borrowers.
• To avoid appearing biased, a bank or other lender must offer the same loans to any borrower.
• Banks can pick both the interest rate and the borrowers they lend money to.
• Banks can pick the borrowers they lend money to, but must set the same interest rate for everyone.

Pretend you take out a 30-year fixed rate mortgage for $250,000. Which of the following statements would be true?

• The payment amount you owe every month will be the same
• The amount of interest you pay every month will be the same
• The amount of principal you pay every month will be the same
• You will not be allowed to pay more than the amount due every month

Which of the following is a TRUE statement describing the benefits of an installment loan?

• An installment loan allows you to make one large purchase, even if you don’t have all the money for it up front
• An installment loan does not require a credit check, so they are easy to obtain
• An installment loan allows you to make many small purchases as you need them, as long as you’re under your credit limit
• An installment loan does not require monthly payments, so they can be paid back when the borrower is ready

Which statement has the bolded words in the correct place?

• A
• B
• C
• D

Which of the following statements best explains the purpose of a Schumer box?

• Gives the lender a clear report of your credit history and creditworthiness for a new card
• Calculates the total interest you will be charged on your previous month's purchases
• Gives the borrower a clear description of the APR, fees, and other major conditions of their credit card
• Provides a list of all purchases made on a credit card and the price of each item, for the benefit of the lender and the borrower

Which description best fits what is meant when someone talks about their credit card APR?

• The total amount of purchases they charge on an annual basis
• The remaining balance left on a credit card once the minimum monthly payment is made
• The average credit score each person is assigned based on their payment history
• The percent the credit card company charges you for the benefit of receiving a temporary loan from them

If Fabrice has a $1200 balance on his credit card this month and an APR of 20%, his interest charge for the month will be...

• $2
• $20
• $120
• $200