Chapter 7 Practice

You can borrow, repay, and reborrow from a home equity loan in the same way as you can from a home equity credit line. T/F

false

. A legal claim that allows creditors to liquidate loan collateral is a: a. loan application. b. note. c. security claim. d. lien. e. loan rollover.

lien

The most common use of consumer loans is to: a. purchase a car. b. finance college education. c. finance a vacation. d. buy a house.

purchase a car

If Liza's debt safety ratio is 15% and her monthly take-home pay is $4,500, which of the following equals her total monthly payments? a. $675 b. $1,200 c. $500 d. $450 e. $890

$675

. Which of the following statements regarding fixed-rate loans is true? a. Fixed-rate loans are preferable when interest rates are expected to rise. b. The cost of fixed-rate loans increases with an increase in the market interest rate. c. The cost of fixed-rate loans decreases with a decrease in the market interest rate. d. Fixed-rate loans are preferable when interest rates are expected to fall. e. The interest rates on fixed-rate-loans have periodic adjustment dates, at which time monthly payments are adjusted.

Fixed-rate loans are preferable when interest rates are expected to rise.

Which of the following sources of consumer loans often has the most favorable terms for borrowers? a. Commercial banks b. Credit unions c. Consumer finance companies d. Savings and loan associations e. Asset management companies

credit unions

Most loans made by savings and loan associations are: a. home improvement loans. b. auto loans. c. mortgage loans. d. education loans. e. consolidation loans.

mortgage loan

Jenny's monthly take-home pay is $5,000, and her total monthly payments are $1,000. Which of the following is Jenny's debt safety ratio? a. 10% b. 5% c. 20% d. 35% e. 40%

20%

Which of the following is a nondepository institution? a. A commercial bank b. A credit union c. A consumer finance company d. A savings and loan association e. A savings bank

A consumer finance company

Which of the following statements regarding loan collateral is true? a. Loans secured by collateral always have higher finance charges than unsecured loans. b. Collateral is an item of value used to secure the principal portion of a loan. c. Collateral is always required by banks to lend to customers with good credit ratings. d. Collateral is an item of value used to secure the interest portion of a loan. e. Loans are secured by collateral that is readily marketable at a price high enough to cover the interest portion of the loan.

Collateral is an item of value used to secure the principal portion of a loan.

A _____ loan is intended to help consumers who have an unhealthy credit situation caused by overusing their credit. a. personal b. single-payment c. buy-down d. consolidation e. standard

consolidation

Only stocks can be used as collateral for personal loans. T/F

false

The repayment of the principal of installment loans is made in a lump sum, and the repayment period of installment loans is 6 to 12 months. T/F

false

A loan rollover means that: a. the loan is paid off by taking out another loan. b. the loan is repaid without any defaults in payments. c. the interest on the new loan is lower than the previous loan. d. the maturity period of the new loan is longer than the maturity period of the original loan. e. the new loan will not have any processing fees.

the maturity period of the new loan is longer than the maturity period of the original loan

Commercial banks are able to charge lower interest rates than other lending institutions because: a. they make shorter-term loans. b. they usually take only the best credit risks. c. their depositors require higher rates. d. they get their funds from the money market. e. they make only secured loans.

they usually take only the best credit risks.

It is legal for a lender to charge a prepayment penalty. T/F

true

Most consumer loans are made at fixed rates of interest. T/F

true

The cash value of some types of life insurance policies can be used as collateral for loans. T/F?

true

The debt safety ratio indicates the total assets owned by an individual. T/F

true