ACC 3005 Personal Finance CH 7

It is said that the least expensive way to borrow is when you borrow on the value of a financial asset. Which of the following loans would meet that test?

Certificate of deposit loan Life insurance cash surrender value loan

True or false: Family loans are simple arrangements and can benefit both parties and no documentation is recommended.

false

The Truth in Lending law of 1969 requires lenders to state the cost of borrowing as a specific ___ amount so that consumers know exactly what the credit charges are. This is a one-word answer.

dollar, currency, monetary, cash, or $

Payday loans are (inexpensive or expensive) ___ although readily available via check cashers, finance companies, and other sources.

expensive

Which of the following best explains the flaw in the strategy of borrowing from a finance company?

When you are denied credit from traditional sources, you probably have less ability to afford the higher rate a finance company charges.

The first thing a debtor must do in a Chapter 7 bankruptcy is to draw up a petition listing ___ and liabilities or debts for submission to the court.

assets

The two major categories or types of credit are __ -end and closed-end credit.

open

Family members may only charge interest they would have earned on the money if they had deposited it in a ___ account.

passbook

Simple interest (I) is calculated as follows: ___ X Rate of Interest X Time. This is a one word or one letter answer.

principal or P

If you are denied credit by a bank or credit union, you should question:

question your ability to pay for the item

True or false: The Fair Debt Collection Practices Act prohibits certain practices by agencies that collect debts for creditors.

true

The costs of Chapter 13 bankruptcy include court costs, lawyer fees, and ___ fees.

trustees'

The costs to Chapter 13 bankruptcy include:

trustees' fees and costs court costs attorneys' fees

Long-term financing is more costly than short-term financing because:

you will pay more in interest charges.

Which of the following is generally considered to be expensive sources of loans?

Appliance companies Department stores Bank credit cards Finance companies

Which of the following loans are offered by credit unions to consumers?

Installment loans Credit card loans Share draft loans

What is the best strategy if you can't make a payment on a debt?

Notify the creditor as soon as possible in an attempt to work out a modified payment plan.

The Fair Debt Collection Practices Act ______ to creditors that collect debts themselves.

does not apply

After Chapter 13 bankruptcy, people may find obtaining credit

easier

True or false: Most credit card companies do not charge a fee when a cash advance is made.

false

Most credit cards carry a special ___, based on the percentage of the amount borrowed, that is applied when a cash advance is taken out. This is a one-word answer.

fee

Cash advances on credit cards usually accrue ___ from the moment you accept the cash.

interest

The rule of 78s formula favors

lenders

Credit life insurance is generally ___ expensive compared to equivalent term life insurance.

more

Two situations when you should avoid credit are: when you don't ___ or really want the purchase, and when you could pay cash but choose to finance the needed item.

need

There are several reasons that you should borrow from a credit union, including their patience in dealing with borrowers who have good reasons for missed payments, and they provide ___ service.

personalized

In Chapter 7 bankruptcy, a debtor is required to draw up a ___ listing his or her assets and liabilities.

petition

True or false: Credit cards are convenient, but not always better, to use than installment debt because of the latter's application process and procedures; but that ease of use can lead to overuse.

true

A married couple that does not talk about money could be:

having debt problems.

True or false: The purpose of the Truth in Lending law of 1969 was to give consumers the information needed to compare credit costs on various loans.

true

True or false: The rule of 78s is a mathematical formula to determine how much interest has been paid at any point in a loan.

true

True or false: You should avoid credit when you don't need the purchase and when you can afford to pay cash to acquire the item.

true

Which of the following obligations are not discharged in a Chapter 7 bankruptcy?

- child support - fines - certain taxes - alimony

Which of the following items of income and value are protected under a Chapter 7 bankruptcy?

- equity in home - trade tools - household appliances - equity in cars - SS payments and unemployment compensation

If you have funds available on your credit card, you can obtain a cash advance from ___.

a bank or credit union an ATM

Which of the following types of loans are offered by life insurance companies?

cash value of whole life

Cash advances are obtained through your ___ card at a bank or through an ATM machine. This is a one-word answer and found in the discussion of cash advances.

credit

One of the intangible costs of bankruptcy is the difficulty obtaining ___ in the future

credit

The three types of credit insurance are:

credit accident and health. credit property. credit life.

If you cannot make a payment on a debt when due, contact the ___ at once to work out a modified payment plan. This is a one-word answer.

creditor, lender, bank, or financier

In a straight bankruptcy, many but not all ___ are forgiven.

debts

The interest rate on cash advances is often ___ than the rate on purchases.

higher

Which of the following are advantages of borrowing from a credit union?

patient with borrowers personalized service

The new Credit CARD Act requires creditors to include a warning on the monthly statement about the costs of making only the minimum ___.

payment or payments

Another very expensive way to borrow is a(n) ___ refund loan, which is possibly more expensive than a cash advance on a credit card.

tax

One reason some people use payday loans is that:

they are convenient

A reason why people tend to choose long-term financing is:

they want to make smaller monthly payments.

True or false: In most cases, it is less expensive to borrow money using your certificate of deposit as collateral for a loan than if you use your used car.

true

A simple interest declining balance loan has the following terms: 8% annual interest rate, $2,000 loan, two payments: one at the end of the first half year and the last payment at the end of the second half year. What would be the amount of these two payments?

$1,080 and $1,040 $2,000 * 0.08 * 0.5 = $80 $1,000 + $80 = $1,080 $1,000 * 0.08 * 0.5 = $40 $1,000 + $40 = $1,040

If you borrow $200 and it cost you $22 in interest with a service charge of $5, what is the finance charge?

$27

If you borrow $200 and it cost you $27 in interest with a service charge of $6, what is the finance charge?

$33

What would be the interest cost (simple interest) for a $2,000 loan with a 6% rate for a half of a year?

= $2,000 * 0.03 = $60

Which of the following are signs of possible debt problems?

- using up savings - getting a credit card revoked - having little in savings - borrowing money to pay old debts

An example of a travel and entertainment card is

Diners Club

The pros and cons of T&E credit cards, such as American Express, include:

Full payment is due each month. Annual fees are typically high. No finance charge is incurred as full payment of the balance owed is due each month.

Installment loans are a cheaper alternative to credit cards because:

They are cheaper over many months or years when an extended payment period is needed. Their interest rates are often lower than credit card rates.

Sharon has been taking out student loans to finance her college education. She has amassed a great deal of debt, but plans to declare Chapter 7 bankruptcy to have the debt forgiven. Will her strategy work?

No, student loans are not forgiven in Chapter 7 bankruptcy.

Tax refund loans are a(n) Blank______ way to borrow money in case of a cash shortfall.

expensive

A credit counseling organization usually provides credit management classes and helps you devise a credit management ___.

plan

The two main activities of the CCCS are:

- helping families with debt problems by helping them manage debts - teaching families how to avoid heavy debt burdens in the future

The major provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009:

- limits the issuer's ability to increase the interest rate in the first year - set a consistent due date for each month - state that a teaser rate must be good for at least six months