Question

banking: quiz 2
changes in interest rates can create both good and bad results.
how can a lower interest rate potentially affect credit card owners?
choose 1 answer:
a it can allow faster debt reduction.
b it can add on to the existing debt.
c it can lead to increased apr.
d it can lead to bankruptcy.

Explanation:

To determine the effect of a lower interest rate on credit card owners, we analyze each option:

• Option A: A lower interest rate means less interest is charged on the credit card balance. So, when making payments, more of the payment goes toward reducing the principal debt, allowing for faster debt reduction. This is a logical outcome of a lower interest rate.
• Option B: A lower interest rate would not add to existing debt; in fact, it reduces the cost of borrowing, so this is incorrect.
• Option C: APR (Annual Percentage Rate) is related to the interest rate charged. A lower interest rate would likely lead to a lower APR, not an increased one, so this is incorrect.
• Option D: While financial issues can lead to bankruptcy, a lower interest rate generally eases the debt burden, so it is not a direct result of a lower interest rate, making this incorrect.

Answer:

A. It can allow faster debt reduction.