Purchase Decision Basics
Original amount of money borrowed or invested excluding interest
"Principle"
Right answer=Pay off $20
Wrong answer=$10 deeper into debt
The highest amount a credit card issuer allows you to borrow at one time.
Credit Limit
The process of paying off debt through regular, scheduled payments toward both principal and interest.
Amortization
If you only pay the minimum on a credit card, you will end up paying this amount of interest over time.
significantly higher amount
A document containing your employment history, debt history, and personal info, used by lenders.
Credit Report
What is the acronym represents the yearly cost of borrowing with interest and fees?
APR(Annual Percentage Rate)
Right Answer=Pay off $20
Wrong Answer=$20 deeper into debt
This 21-25 day window allows you to pay your balance in full without accruing interest.
Grace Period
In the early years of a mortgage, most of the payment goes toward this, rather than the principal.
Interest
To pay less interest over the life of a loan, you should do this, which involves paying more than the minimum.
paying more principal
Assets that a lender can take back if you fail to repay a loan.
Length of time that a loan is active
Term
Right Answer=Pay off $30
Wrong Answer=$30 deeper into debt
The absolute lowest amount you must pay to avoid late fees and a penalty APR.
Minimum Payment
A loan where the interest rate stays the same for the entire term.
Fixed-Rate Loan
Mario has a $1,300 balance at a 20% APR; this is roughly what he will pay in interest in one month.
$21.67
Using credit to buy things you cannot afford leads to this financial state, making it hard to catch up.
Debt
If you were to borrow $10,000 at 5% simple interest for 2 years, what would the interest be?
$1000
Right answer=Pay off $40
Wrong answer=$40 deeper into debt
Fees charged for a cash advance or using an ATM to take cash from your card.
Transaction Fees
A loan where the interest rate can change periodically, often starting lower than fixed rates.
Adjustable-Rate Mortgage (ARM
This is the most crucial factor to consider when choosing a credit card if you plan to carry a balance.
APR
Is it smarter to pay the minimum payment every month or pay off credit card debt in full?
Credit Card debt in full
This type of interest is calculated only on principle.
Simple Interest
Right=Pay off $50
Wrong=$50 deeper into debt
This type of APR is triggered when you fail to make payments on time.
Penalty APR
This occurs when a borrower's payment is not enough to cover the interest, increasing the principal balance.
Negative Amortization
A $200,000 home might actually cost $360,000 over 25 years due to this over time.
accumulated interest
Fixed