CCDS Consumer Debt Products & Interest Calculations 2

Question 1

Under the Truth in Lending Act (TILA), lenders must disclose the APR primarily to help consumers:

Accepted Answer

Compare the true cost across different loan offers

Answer

Calculate their monthly payment

Answer

Determine the lender's profit margin

Answer

Negotiate a lower principal balance

Question 2

A consumer has a $10,000 auto loan at 6% annual interest amortized over 48 months. If the monthly payment is approximately $235, how much of the FIRST payment is interest?

Accepted Answer

$50

Answer

$235

Answer

$185

Question 3

Which consumer debt product typically carries the highest average interest rate?

Accepted Answer

Credit card

Answer

30-year fixed mortgage

Answer

Federal student loan

Answer

Auto loan

Question 4

A 'teaser rate' on a credit card is best described as:

Accepted Answer

A temporary promotional APR that resets to a higher standard rate

Answer

A permanent low rate for loyal customers

Answer

The penalty rate triggered by late payments

Answer

The cash advance rate

Question 5

The Credit CARD Act of 2009 restricts credit card issuers from applying rate increases to:

Accepted Answer

Existing balances already carried on the account

Answer

New purchases made after the increase notice

Answer

Cash advances taken after the rate increase

Answer

Penalty APRs triggered by 60-day delinquency

Question 6

Compound interest differs from simple interest in that compound interest:

Accepted Answer

Accrues interest on both principal and previously earned interest

Answer

Is calculated only on the original principal

Answer

Never applies to consumer loans

Answer

Results in lower total interest costs

Question 7

A debt consolidation loan is most beneficial when it:

Accepted Answer

Carries a lower interest rate than the existing debts

Answer

Has a higher APR than the debts being consolidated

Answer

Extends the repayment term without reducing the interest rate

Answer

Requires collateral equal to twice the loan amount