Intro to Credit
Student Loans
Credit Cards
Loan Fundamentals and Predatory Lending
Compound Interest Formula
100
Which of the following statements 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
2. If the borrower does not make payments, the lender can repossess the item
100
Which of the following are NOT benefits of federal student loans?
A) Lower interest rates compared to private loans.
B) Flexible repayment plans, including income-driven repayment options.
C) The loan is guaranteed to cover all school expenses.
D) Loan forgiveness programs for qualifying borrowers.
C) The loan is guaranteed to cover all school expenses.
100
What is an outstanding balance?
- The amount you paid in your minimum payment
- The amount you spent in total
- The amount you still owe after you have made your most recent payment
- The amount you still have available in your line of credit
3. The amount you still owe after you have made your most recent payment
100
What is a payday loan?
A) A long-term loan with low interest rates.
B) A short-term loan with high interest rates
C) A type of secured loan that requires collateral.
D) A revolving credit line that allows ongoing borrowing.
B) A short-term loan with high interest rates
100
Plug in the correct numbers into the compound interest formula:
Principal: $1,000
Interest Rate: 9%
Compounded: Monthly
Term: 9 years
A=1000(1+.09/12)^(12*9)
200
Each of the following represents an installment loan EXCEPT…
- Home mortgage
- Auto loan
- Student loan
- Credit card
4. Credit card
200
What is a direct subsidized student loan?
A) A loan that requires immediate repayment upon disbursement.
B) A loan where the government pays the interest while the borrower is in school.
C) A loan with a variable interest rate available only to graduate students.
D) A loan that allows the borrower to access funds for living expenses without any restrictions.
B) A loan where the government pays the interest while the borrower is in school.
200
What is one way to guarantee you don’t pay interest on your credit card?
Pay your entire balance in full every month
Pay your minimum monthly payment on time
Spend less than your credit limit
Only make new purchases every other month
Pay your entire balance in full every month
200
The average APR for a payday loan is closest to …
- 4%
- 14%
- 40%
- 400%
4. 400%
200
Plug in the correct numbers into the compound interest formula:
Principal: $5,000
Interest Rate: 3.56%
Compounded: Daily
Term: 1 years
A=5000(1+.0356/365)^(365*1)
300
Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?
- Principal
- Term
- Interest rate
- APR
1. Principal
300
What is a direct unsubsidized student loan?
A) A loan available only to undergraduate students with financial need.
B) A federal loan where the borrower is responsible for all interest accrued during school and deferment periods.
C) A loan that does not require a credit check and is awarded based on merit.
D) A loan that has a fixed interest rate and does not require repayment until after graduation.
B) A federal loan where the borrower is responsible for all interest accrued during school and deferment periods.
300
Don has a credit card with a $1000 credit limit. His outstanding balance is currently $800. What is the maximum amount he can now spend on this credit card?
- $200
- $800
- $1000
- $1800
- $200
300
Predatory Lending is defined as...
1. When the minimum payment is higher than the interest
2. When the minimum payment is less then the interest
2. When the minimum payment is less then the interest
300
Plug in the correct numbers into the compound interest formula:
Principal: $650
Interest Rate: 20%
Compounded: Daily
Term: 6 months
A=650(1+.2/365)^(365*1/2)
400
Revolving Credit is defined by which of the following:
1. Debt that is not backed by collateral, relying solely on the borrower’s creditworthiness
2. A loan with a constant interest rate that remains the same throughout the life of the loan.
3. A type of credit that allows borrowers to access funds up to a certain limit, where they can borrow, repay, and borrow again.
4. A loan with an interest rate that can change over time based on market conditions or an index.
3. A type of credit that allows borrowers to access funds up to a certain limit, where they can borrow, repay, and borrow again.
400
What is a Direct PLUS student loan?
A) A loan available to undergraduate students that is need-based.
B) A loan that can be obtained from private lenders with flexible repayment options.
C) A loan that does not require repayment until after graduation.
D)A federal loan for graduate or professional students, and parents of dependent undergraduate students, that covers education costs not met by other financial aid.
D)A federal loan for graduate or professional students, and parents of dependent undergraduate students, that covers education costs not met by other financial aid.
400
Why would credit card companies prefer that their cardholders make the minimum monthly payment every month rather than paying their total balance in full?
- This is required by federal law for tax purposes
- This allows the cardholder to pay their bill quickly and close the card when they’re ready
- This enables the credit card company to make more money
- This helps cardholders develop financial independence
3. This enables the credit card company to make more money
500
Each of these statements describes a variable rate loan EXCEPT...
- Typically starts with a lower interest rate than a fixed-rate loan
- Is riskier to the borrower because the interest rate could increase substantially
- Is almost always a better option
- Can increase or decrease the interest rate over the course of the loan
3. Is almost always a better option
500
What are private student loans?
A) Loans offered by the federal government with fixed interest rates.
B) Loans provided by private lenders that can have varying interest rates and terms.
C) Loans that are exclusively available for students attending for-profit colleges.
D) Federal loans that do not require repayment until after graduation.
B) Loans provided by private lenders that can have varying interest rates and terms.
500
Which kind of Compounding interest would you want on your credit card?
Daily
Weekly
Monthly
Annually
4. Annually