Mortgage Loan Originator (MLO) Licensing Practice Test

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Prepare for the Mortgage Loan Originator Licensing Test with engaging quizzes. Study with multiple-choice questions that include explanations and suggestions. Ace your exam with confidence!

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What is the typical method of interest calculation for credit cards?

Compounded monthly
Compounded quarterly
Compounded daily
Compounded annually

The correct answer is: Compounded daily

The typical method of interest calculation for credit cards is compounded daily. Credit card issuers generally calculate interest on a daily basis, which means that the interest amount can accumulate quickly based on the outstanding balance each day. This daily compounding methodology results in a higher effective annual percentage rate (APR) compared to other compounding periods, like monthly or annually. Since interest is added daily, the balance on the card can grow more rapidly, especially if the cardholder carries a balance from month to month. This practice encourages timely payments and can significantly impact the total interest paid over time if the balance is not cleared. Hence, daily compounding is a crucial aspect of understanding credit card debt management.