Sample Questions and Answers
What is the main disadvantage of a payday loan?
A) The loan terms are usually very flexible
B) The interest rates are often extremely high
C) You can easily extend the loan term
D) There are no fees associated with payday loans
Answer: B
How long can negative information, such as missed payments, stay on your credit report?
A) 1 year
B) 3 years
C) 7 years
D) 10 years
Answer: C
What is a fixed-rate mortgage?
A) A mortgage where the interest rate changes based on market conditions
B) A mortgage where the interest rate remains the same for the entire term of the loan
C) A mortgage that only requires interest payments
D) A mortgage with a variable repayment schedule
Answer: B
What is a key advantage of having a co-signer for a loan?
A) It reduces the interest rate
B) It increases the loan’s principal
C) It ensures the loan is repaid if the primary borrower defaults
D) It eliminates all loan fees
Answer: C
How can paying off a credit card bill on time help you?
A) It improves your credit score and saves you money on interest
B) It automatically lowers your credit card limit
C) It eliminates your debt entirely
D) It removes late payment history from your credit report
Answer: A
What is the term for the maximum amount a credit card issuer will allow you to borrow?
A) Credit limit
B) Annual fee
C) Interest rate
D) Grace period
Answer: A
What is an advantage of using a credit card over a debit card?
A) Credit cards are easier to lose
B) Credit cards provide cash rewards and purchase protection
C) Credit cards are only accepted at specific locations
D) Debit cards charge higher interest rates
Answer: B
What does an introductory 0% APR offer on a credit card usually apply to?
A) All purchases
B) Only cash advances
C) Only balance transfers
D) Both purchases and balance transfers for a limited period
Answer: D
Which of the following would be considered a responsible action when applying for a loan?
A) Borrowing more than you can afford to pay back
B) Reading the loan agreement thoroughly and understanding the terms
C) Choosing a loan based solely on the lowest monthly payment
D) Ignoring your credit score to avoid checking your history
Answer: B
What is the best strategy for paying off credit card debt?
A) Paying only the minimum payment
B) Transferring the balance to another credit card to get a lower rate
C) Ignoring the debt until interest rates go down
D) Borrowing more money to pay off the balance
Answer: B
What is the effect of defaulting on a loan?
A) It increases your credit score
B) It lowers your credit score and may lead to legal action
C) It guarantees loan forgiveness
D) It automatically lowers your interest rate
Answer: B
What should you do if your credit card is lost or stolen?
A) Wait until your next statement arrives to report it
B) Contact the credit card issuer immediately to report the loss
C) Use the card for purchases until the issuer cancels it
D) Continue to make payments on the card until the issue is resolved
Answer: B
What is the purpose of a credit inquiry when applying for a loan?
A) To check the borrower’s creditworthiness
B) To assess the loan amount needed
C) To verify the borrower’s income
D) To provide the borrower with loan options
Answer: A
Which of the following is NOT a reason for a low credit score?
A) Late payments on loans and credit cards
B) High credit utilization ratio
C) Having no credit cards or loans
D) Paying bills on time and in full
Answer: D
Which of the following is an example of a secured loan?
A) Payday loan
B) Auto loan
C) Personal loan
D) Student loan
Answer: B
What is a key disadvantage of using a credit card for everyday purchases?
A) You can earn rewards points
B) Interest charges can accrue if you carry a balance
C) You can delay payments indefinitely
D) It improves your credit score instantly
Answer: B
What is the primary factor that lenders use to determine your loan eligibility?
A) The color of your house
B) Your credit score
C) Your social media presence
D) Your family’s financial history
Answer: B
What is a typical feature of a mortgage with an adjustable rate?
A) The interest rate remains the same for the entire term
B) The interest rate fluctuates based on market conditions
C) The loan amount can be changed during the term
D) No down payment is required
Answer: B
What does “APR” stand for in relation to credit cards and loans?
A) Annual Percentage Rate
B) Application Processing Rate
C) Average Payment Return
D) Annual Principal Rate
Answer: A
Which of the following can negatively affect your credit score?
A) Paying off credit card debt in full
B) Missing multiple credit card payments
C) Keeping your credit utilization below 30%
D) Reducing your total debt
Answer: B
What is a benefit of consolidating multiple loans into one loan?
A) You can avoid paying interest
B) You may lower your monthly payments by extending the loan term
C) You can reduce your total debt
D) The loan term will automatically shorten
Answer: B
What does the term “credit limit” refer to?
A) The maximum balance a borrower can have on a credit card
B) The minimum payment amount due each month
C) The total interest paid on a loan
D) The total fees charged by a credit card issuer
Answer: A
What is the “grace period” for a credit card?
A) The period during which you can borrow more money without interest
B) The period after the due date when late fees are not charged
C) The period after a purchase when no interest is charged if paid in full
D) The period when you can change your interest rate
Answer: C
What is the primary disadvantage of a payday loan?
A) It offers low interest rates
B) It has extremely high-interest rates and short repayment periods
C) It has a long repayment term
D) It requires a down payment
Answer: B
What is a good strategy to improve your credit score over time?
A) Use only cash for all purchases
B) Open several new credit accounts to build your credit
C) Pay bills on time, maintain low credit card balances, and avoid opening unnecessary new credit lines
D) Keep a credit card with a large balance open without using it
Answer: C
What is the advantage of paying more than the minimum payment on a credit card?
A) It will increase your credit score immediately
B) It helps reduce the interest charges and pay off the balance faster
C) It increases your credit limit
D) It eliminates the need for making future payments
Answer: B
How can you avoid paying interest on a credit card?
A) Only make the minimum payment each month
B) Carry a balance every month
C) Pay your balance in full before the due date
D) Use the card only for small purchases
Answer: C
What is the main disadvantage of borrowing from a payday lender?
A) The loan can be repaid over several years
B) The loan amount is flexible based on the borrower’s needs
C) The fees and interest rates are typically very high
D) The loan requires no repayment
Answer: C
What is a common way to rebuild credit after financial hardship?
A) Opening multiple new credit cards
B) Paying bills on time and keeping credit card balances low
C) Closing old credit accounts
D) Ignoring any negative marks on your credit report
Answer: B
Which type of loan typically has the lowest interest rates?
A) Payday loans
B) Personal loans
C) Auto loans
D) Credit card loans
Answer: C
Which of the following does NOT help in building a strong credit score?
A) Keeping credit utilization below 30%
B) Frequently applying for new credit cards
C) Paying bills on time
D) Maintaining a long credit history
Answer: B
What does “debt-to-income ratio” measure?
A) The total amount of debt relative to your income
B) The interest rate of a loan compared to the principal
C) The total assets you own versus your liabilities
D) The length of time it takes to pay off debt
Answer: A
What is the key feature of a fixed-rate mortgage?
A) The interest rate fluctuates based on market conditions
B) The interest rate remains the same throughout the life of the loan
C) It allows you to pay off the loan at any time without penalties
D) The principal balance increases over time
Answer: B
Which of the following is typically a disadvantage of using a credit card for a large purchase?
A) You can delay payment indefinitely
B) Interest rates can quickly add up if the balance is not paid in full
C) You can avoid all fees
D) The credit card issuer pays for the purchase
Answer: B
What does it mean to have a “good” credit score?
A) It means you have no outstanding loans
B) It means you can borrow unlimited amounts of money
C) It means you are considered a low-risk borrower by lenders
D) It means you have no credit cards
Answer: C
What is a common term used for a loan with no collateral?
A) Secured loan
B) Unsecured loan
C) Mortgage loan
D) Payday loan
Answer: B
What type of loan would typically have the highest interest rate?
A) Personal loan
B) Auto loan
C) Mortgage loan
D) Payday loan
Answer: D
What should you consider before cosigning for a loan?
A) The person you are cosigning for has excellent credit
B) You are responsible for the loan if the borrower defaults
C) You will receive credit rewards for cosigning
D) The loan will never appear on your credit report
Answer: B
What is the purpose of credit counseling services?
A) To provide financial loans to those in need
B) To help individuals manage debt and improve credit
C) To offer credit cards with no fees
D) To increase a borrower’s credit score automatically
Answer: B
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