AnswersFL-2102310-EconomicsHow Credit Works

How Credit Works Answers

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What are the characteristics of payday loans?

A
delayed repayment period, low interest
B
flexible repayment period, no interest
C
long repayment period, low interest
D
short repayment period, high interest
2
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Abby has the option of using her credit card, which has compound interest of 10%, for a $5,000 expense. She also sees an offer for a personal loan of $5,000, with 10% simple interest. Why might the loan be a better deal?

A
The personal loan will end up costing only $5,000 in the end, while the credit card will cost more.
B
If Abby opens an additional line of credit with the personal loan, her credit score will improve.
C
With simple interest, the interest will not accumulate if Abby does not pay the loan off quickly.
D
Personal loans do not have payment deadlines the same way that credit cards do.
3

What is one advantage of opening and using loans?

A
They help to build credit.
B
They lower expenses long-term.
C
They help to reduce debt.
D
They increase total income.
4

Keyshia uses only some of the credit line on her credit card and pays off the balance every month. What might the lender of her loan do as a result?

A
shorten her repayment period
B
increase her credit limit
C
close her line of credit
D
take away one of her assets
5

What is the advantage of saving for 5 years to pay the total price for a car, over buying the car today using a 5-year loan?

A
avoiding interest payments
B
paying less interest
C
spreading out payments over time
D
building one’s credit
6

Phoebe takes out a student loan to afford college. She expects to get a job after college that provides enough income to pay off the loan. What risk does she also have to think about?

A
The lender could take away her diploma if she does not pay the loan.
B
The debt might make it harder for her to get other loans in the future.
C
She will have to work during college to afford her monthly payments.
D
She might lose her car to the lender if she cannot afford minimum payments.
7

Why might a person be tempted to borrow from a payday loan store?

A
The borrower has few other options due to income.
B
The borrower is drawn to the possibility of low rates.
C
The borrower could receive an increase in their pay.
D
The borrower likes the inexpensive fees of these loans.
8

As Raina makes sure she has enough money for her auto loan payment, she reminds herself that her car is considered collateral. What does this mean?

A
Raina cannot borrow any more money until she pays for the car.
B
If Raina cannot pay the loan, the car will be taken back from her.
C
The car is tied to the value of the mortgage on Raina’s home.
D
Once Raina pays back the loan, the lender will own the car.
9

Review the table, which provides information on personal loans.

Question illustration
A
Bank A
B
Bank B
C
Bank C
D
Bank D
10

Louisa makes a payment that completely pays off her credit card. What happens to her line of credit as a result?

A
Louisa receives her money back from the lender.
B
Louisa still has to pay off the interest on the loan.
C
The entire amount is available for Louisa to use again.
D
The lender takes the credit card back from Louisa.

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