Financial Literacy and Personal Finance Flashcards

What is a credit score primarily used for?

Answer: To assess how likely you are to repay borrowed money

A credit score is a numerical rating that lenders use to evaluate the risk of lending money to a borrower based on their credit history and repayment behavior.

What is the main purpose of a chequing account?

Answer: For everyday transactions such as paying bills and making purchases

Chequing accounts are designed for frequent everyday transactions including paying bills, making purchases, and withdrawing cash.

What is interest on a loan?

Answer: The fee charged by a lender for borrowing money

Interest is the cost of borrowing money, expressed as a percentage of the principal, paid to the lender over the duration of the loan.

Why is it important to pay more than the minimum payment on a credit card balance?

Answer: It reduces the total amount of interest paid over time

Paying only the minimum payment means more interest accumulates on the remaining balance, making the total repayment cost much higher over time.

What does APR stand for in the context of loans and credit cards?

Answer: Annual Percentage Rate

APR stands for Annual Percentage Rate, which represents the yearly cost of borrowing money including interest and fees expressed as a percentage.

What is overdraft protection on a bank account?

Answer: A feature allowing transactions to proceed even when the account balance is insufficient, up to a set limit

Overdraft protection allows transactions to go through even when your account balance is insufficient, typically resulting in a fee from the bank.

What is the key difference between a secured and an unsecured loan?

Answer: A secured loan requires collateral; an unsecured loan does not and typically has a higher interest rate

Secured loans require collateral such as a house or car that the lender can claim if you default, while unsecured loans have no collateral but typically carry higher interest rates.