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Types of Credit
Use these to help study for your test.
| Term | Definition |
|---|---|
| Amortization | The paying off of debt over time in equal installments; part of each payment goes toward the loan principal while the other part goes toward interest. |
| Annual Percentage Rate (APR) | The cost you pay each year to borrow money, including fees, expressed as a percentage |
| Collateral | Something valuable that the lender can take as payment if you can't or don't repay your secured loan |
| Cosigner | Someone who legally agrees to take responsibility for a person's debt if they cannot repay it |
| Credit Card | A plastic card that allows you to make purchases now with borrowed money, which then you must repay to the lender in one lump sum or in monthly payments with interest |
| Credit Limit | The maximum amount that may be borrowed on a credit card |
| Fixed-Rate Loan | A loan with an interest rate that does not change over the life of the loan |
| Minimum Payment | The smallest amount of a credit card bill that a credit card holder must pay during a billing cycle to remain in good standing with the lender |
| Mortgage | A loan taken by individuals and businesses to make real estate purchases without paying the entire value of the purchase up front |
| Principal | Original amount of money borrowed, separate from interest or fees |
| Secured Loans | Business or personal loans that require some type of collateral as a condition of borrowing. If |
| Term | The amount of time you have to repay your entire loan |
| Variable-Rate Loan | A loan in which the interest rate can change, based on prime rate or index rate, over the course of the loan |
| The details of any loan will include the following 3 components: | The principal, the interest rate, and the loan term |
| Why are secured loans considered less risky to the lender? | Lenders can take valuable collateral if you fail to repay your loan |
| Having a good credit score, making a larger down payment, and finding a cosigner with good credit are all ways to… | Decrease your interest rate |
| Which best describes how a credit card works? | The credit card company extends you a line of credit. You purchase "stuff" and then have the choice to pay the balance in full or a minimum payment each month. |
| What is the advantage of paying your credit card balance in full each month? | You avoid paying any interest and fees |
| What is an outstanding balance? | The amount you still owe after you have made your most recent payment |
| A fully amortized payment is split into which two components? | The principal and the interest |
| As the months progress on an amortized loan... | The payments stay the same, but the principal is paid down more quickly and less goes to interest. |
| A higher credit score... | Will help you obtain a lower interest rate on an auto loan |
| Grace Period | The period between the end of a billing cycle and the date your payment is due. During this time, you may not be charged interest as long as you pay your balance in full by the due date. |
Created by:
LindsayMiller344
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