Credit Card and Student Loan

Question 1

What is APR?

Answer 1

Annual Percentage Rate, the avg is 24%

Question 2

Function of APR?

Answer 2

Shows yearly interest rate and gives you a good idea of how much you’ll need to pay to take out a loan

Question 3

What is Interest?

Answer 3

Fee a business pays a lender to borrow money

Question 4

What is a credit score?

Answer 4

Prediction of your behavior to pay on time and in full

Question 5

What is a Revolving Loan?

Answer 5

A form of credit issued by a financial institution that provides the borrower with the ability to draw down or withdraw, repay, and withdraw again

Question 6

What is a Unsecured Loan?

Answer 6

A lender provides money to a borrower without any legal claim to the borrower’s assets in case of default

Question 7

What is a Grace Period?

Answer 7

10-12 day period immediately after the deadline for an obligation during which a late fee, or other action that would have been taken but is waived

Question 8

What is a Borrower?

Answer 8

A person or business that receives money from a lender with the agreement to pay it back within a specified period of time

Question 9

What is a Issuer?

Answer 9

A legal entity that develops, registers and sells securities to finance its operations

Question 10

What is Manual Underwriting?

Answer 10

Bank collects bills, pay stubs, tax returns to determine loan worthiness

Question 11

What is Loan Worthiness?

Answer 11

Measure of how likely you will default on your debt obligations according to a lender’s assessment, or how worthy you are to receive new credit

Question 12

What happens if you only pay the minimum payment?

Answer 12

You will have to pay the money you owe along with the APR which is a lot of money

Question 13

Difference between minimum payment, statement balance, and current balance

Answer 13

Minimum payment: Riskiest way to pay in which the bank sets you up with a cheaper plan but you get penalized with APR
Statement balance: Less risk but still some risk, only paying the statement which is all the credits and transactions within the time frame of the billing period
Current balance: Best way to pay, means that you pay for all the credits and transactions from not only the billing period but also those made after during the grace period

Question 14

Identify parts of a credit card statement

Answer 14

Haven’t learned yet

Question 15

Purpose of the credit bureaus

Answer 15

1- They give you the borrower, an idea about how you manage debt
2- Give the issuer (a bank) an idea about how you manage debt
3- Provide security protection (report fraud)

Question 16

FICO Score - what it means if you have a high one, a low one, or not one at all

Answer 16

High score: More interest opportunities
Low score: Less interest opportunities, more expensive purchases
Not one: Good at handling debt, not much credit experience

Question 17

FICO - understanding the components - not naming them

Answer 17

35% debt repayment history
30% debt owed
15% how long you’ve been in debt
10% new debt
10% types of debt
= 100% not based on how much money you actually have

Question 18

Credit bureaus - services they provide

Answer 18

Responsibilities:
1. They give you the borrower, an idea about how you manage the debt
2. Give the issuer (a bank) an idea about how you manage debt
3. Provide security protection (reporting fraud)

Question 19

Amortization

Answer 19

Paying off debts over time in equal installments, part of each payment goes toward loan principal and part goes toward interest

Question 20

Subsidized vs. unsubsidized loan

Answer 20

Subsidized: interest accrues after graduation (6 months) while Unsubsidized: interest accrues immediately but has low interest rates

Question 21

FASFA: What is it, who fills it out, when do you fill it out

Answer 21

What: Asset and income information for you and your parents (if dependent)
Who: Anyone going to college that wants help paying for education
When: Filled out every single year, opens Oct 1

Question 22

Difference between financial aid and student loans

Answer 22

Financial aid is money given from the government and through your college that you don’t have to pay back. Student loans are money that you have to borrow from the bank and plan to pay back monthly.

Question 23

What is Transaction?

Answer 23

An agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment.