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Borrowing Basics
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1. What is credit?
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a. Money you borrow and must pay back
b. Free money that you do not have to pay back
c. Money you have saved for emergencies
d. The balance left on a gift card after you have used it to pay for something
2. Maintaining good credit is important because it:
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a. Can help you graduate from college
b. Allows you to carry more cash than usual
c. Allows you to purchase large items like a car, house, or furniture and pay over time
d. Might cause your interest rates to be increased
3. What is a loan?
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a. A charge by a financial institution for maintaining or servicing your loan account
b. Money you borrow but must also repay
c. Something valuable that you own and can sell for cash
d. The cost of borrowing money
4. Which type of loan is used to pay for personal expenses for you and for your family?
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a. Consumer installment loans
b. Credit cards
c. Home loans
d. Both options a and b
5. A loan for which of the following is most likely to be unsecured?
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a. Home
b. Car
c. Furniture
d. Education (e.g. student loan)
6. Which of the following replaces a loan on your home in order to get a better interest rate?
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a. Home equity loan
b. Home equity line of credit
c. Home refinance loan
d. Home purchase loan
7. What type of an interest rate stays the same?
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a. Fixed rate
b. Variable rate
c. Waning interest
d. Dual rate
8. What should you review and compare when shopping for a loan?
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a. Annual percentage rate (APR)
b. Fees
c. Truth in Lending Disclosures
d. All of the above
9. What four factors do lenders generally use in their loan-making decision?
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a. Collateral, capacity, capital, and whether you purchase their credit protection insurance
b. Capital, character, overdraft protection, and collateral
c. Capacity, capital, collateral, and character
d. Character, collateral, capacity, and credit limit
10. Getting credit is not cheap. However, which is usually the least expensive over time?
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a. Rent-to-own services
b. Bank loan
c. Payday loan
d. Refund anticipation services
11. A home equity loan:
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a. Replaces a mortgage at a lower interest rate
b. Has the same monthly payment
c. Is a loan designed for purchasing a house
d. Can be used to pay for any kind of expense
12. If someone offers you a loan, what can you do to make sure it is a good deal?
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a. Check to make sure the loan provider is reputable
b. Shop around and compare all terms and conditions
c. Make sure you can afford the loan payments
d. All of the above
13. Which of the following is a short-term loan secured by your expected income tax refund?
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a. Payday loans
b. Rent-to-own services
c. Refund anticipation services
14. The Equal Credit Opportunity Act (ECOA):
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a. Ensures you are not discriminated against (e.g. because of your race, color, or gender)
b. Requires lenders to notify you if you are denied a loan or credit
c. Requires creditors to promptly credit payments and correct billing mistakes
15. If you buy something on credit, you may pay back the amount you borrowed:
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a. All at once
b. Plus interest
c. According to the credit terms
d. Both options b and c
16. A loan is the amount of money a financial institution charges for allowing you to use its money.
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a. True
b. False
17. The three main types of loans are:
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a. Consumer installment loans
b. Credit cards
c. Home loans
d. All of the above
18. What is used as collateral for a home loan?
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a. The home
b. The furniture or furnishings
c. Personal assets (e.g., a car)
d. All of the above
19. Which of the following is an example of a secured loan?
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a. Home loans and home equity loans
b. Most credit cards
c. Personal loans
d. Student loans
20 Which type of interest rate can change during the loan term?
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a. Fixed interest rate
b. Variable interest rate
21. Which of the following must be included in the Truth in Lending Disclosure?
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a. Amount financed
b. APR
c. Finance charge
d. Total payments
e. All of the above
22. Lenders will review the Four C's to determine whether you are a good credit risk. Which of the following refers to property or assets offered to secure the loan?
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a. Capacity
b. Collateral
c. Capital
d. Character
23. Which of the following information is included in your credit report?
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a. A list of inquiries for your credit report
b. Personal identifiying information
c. Credit history of your accounts
d. Public record information
e. All of the above
24. You must be careful of rent-to-own services, payday loans, and refund anticipation loans because they often cost more than an installment loan.
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a. True
b. False
25. An installment loan:
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a. Always has changing interest rates
b. Generally has the same payment every month
c. Can be used like a check
d. Is the same as rent-to-own agreements
26. Why is credit important?
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a. It allows you to make large purchases (e.g. a car or house) and pay for it over time
b. It can be useful in times of emergencies
c. It is more convenient and safer than carrying large amounts of cash
d. All of the above
27. Which of the following let you use an item for a period of time by making monthly or weekly payments?
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a. Payday loans
b. Rent-to-own services
c. Refund anticipation services
28. Which act ensures you are not discriminated against because of your race, color, or gender?
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a. The Equal Credit Opportunity Act (ECOA)
b. The Fair Credit Reporting Act (FCRA)
c. The Truth in Lending Act
d. All of the above
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