How Does Credit Card Interest WS Flashcards
Credit
The ability of a lender to pay back a payment over time
Principle
The initial price you owe before interest
Interets
An addition amount of money that accumulates as you are paying off debt over time
Credit Card
Easy access to money that you borrow. You have to pay back what you spend over time
Instalment Loan
Loans that are paid off over time from scheduled payments.
EX:Student Loans, Car Loans, Mortgage, Pay Day Loan
Annual Percentage Rate (APR)
The amount of interest that is determined by the cost of borrowing, plus additional fees.
Minimum Payment
The minimum amount of money that can be paid back on a loan at a time
Credit Limit
The maximum amount a lender can borrow money
Revolving credit
A line of credit that stays the same even if you pay the balance in full.
Revolving balance
A balance that carries on month by month
Simple interest
Calculated by the money you owe (principle)
Compound interest
calculated from the principle and accumulated interest
How often do credit cards compound interest?
They normally do it daily
What is a grace period
A time of period where interest is paid by the government and payments are not due until it ends.
When does the grace period expire?
6 months
When does the grace period return?
When you go back to school
What is the prime rate and does it always stay the same?
The interest rates commercial banks will charge their clients based on the Federal Funds Rate. It does not stay the same because of inflation
How does your credit score impact your APR?
The better your credit score, the lower you will pay in APR
Identify a pro and con of balance transfers.
Balance transfer fees, 3%-5%
You can pay off debts more easily
What can happen if you do not pay your credit card on time?
It will hurt your credit score, your credit worthiness will lower
How can a late payment on one card affect the interest rates on another?
45 days
What can you do in the future to prevent yourself from acquiring a massive credit card debt?
Using your credit card for important big purchases and paying it on time
How does a credit card differ from an installment loan?
Installment loans (student loans, mortgages, car loans) show you can pay back money you borrowed consistently over time
Credit cards show you spend varying amounts of money every month and manage your own cash flow.
Give an example of an item a consumer would use an installment loan instead of a credit card?
Car Loans, you can pay back money you borrowed over time.
