CCDS Consumer Debt Products & Interest Calculations

Question 1

A credit card has a nominal annual interest rate of 24%. What is the approximate monthly periodic rate used to calculate finance charges?

Accepted Answer

2%

Answer

The monthly periodic rate is the annual rate divided by 12; 24% ÷ 12 = 2% per month.

Question 2

Which type of consumer debt is typically classified as 'unsecured'?

Accepted Answer

Credit card balance

Answer

Credit card balances are unsecured because no specific collateral backs the debt.

Question 3

The Annual Percentage Rate (APR) on a loan differs from the stated interest rate because APR:

Accepted Answer

Includes fees and costs of the loan

Answer

APR reflects the true cost of borrowing by incorporating both interest and required fees, giving a standardized comparison metric.

Question 4

A consumer borrows $5,000 at 10% simple interest for 2 years. How much total interest will be paid?

Accepted Answer

$1,000

Answer

Simple interest = Principal × Rate × Time = $5,000 × 0.10 × 2 = $1,000.

Question 5

Which repayment structure requires equal monthly payments covering both principal and interest, with interest portion decreasing over time?

Accepted Answer

Amortizing installment

Answer

An amortizing installment loan schedules fixed payments where the interest share shrinks and the principal share grows each month.

CCDS - Certified Consumer Debt Specialist Practice Test