Finance chapter 5

A -end loan from the bank for personal purposes, home improvements, or vacation expenses is considered installment cash credit.

Blank 1: closed or close

If you a loan and the borrower does not pay the debt, you may have to pay up to the full amount of the debt as well as any late fees.

Blank 1: cosign

What would be the interest cost (simple interest) for a $3,000 loan with a 8% rate for nine months of a year?

$180

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

$27

True or false: Family loans are always simple arrangements and can benefit both parties with little or no documentation.

false

Which of the following is not a disadvantage of using credit?

Responsible use of credit can lead to stability

What are the advantages to overspending with credit?

There are no real advantages to overspending on credit

Which of the following is not a warning sign of debt problems?

You pay your monthly credit card statement in full.

Which of the following is not a way to recognize, avoid, and report fraud on the Internet?

Give your password to someone online you think you can trust

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.

Which of the following are good deterrents of identity theft?

Shredding documents before throwing them away Keeping checks in a safe place

In which of the following are many but not all debts forgiven?

Straight bankruptcy

Why do banks prefer customers with high credit scores?

The customer who has a high score will often pay bills on time.

Why are the five Cs used?

To help identify good customers for credit approval

The ECOA covers your mortgage application and bans discrimination based on race, color, age, sex, marital status, national origin, and several other factors.

True

True or false: Credit is defined as an arrangement to receive cash, goods, or services now with payment in the future.

True

True or false: The Consumer Financial Protection Bureau has a website for registering complaints regarding credit card situations.

True

True or false: Subtract monthly expenses from income. If the difference is the less than the loan payment, you can afford the loan.

false

Spending all of your money on credit card bills will:

leave you with no spending money

The five Cs refer to:

policies that help determine who will receive credit

A bank line of credit is also known as:

revolving check credit

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

savings

The Fair Credit Billing Act's underlining purpose is:

to protect consumer credit ratings

To calculate the debt payments to income ratio:

total monthly debt payments (excluding home mortgage) are divided by net monthly income

Banks prefer customers with high credit scores.

true

When making online purchases, you should:

use a secure browser, keep a record of the purchase, and review your statement

A credit bureau is a reporting agency that collects credit and other information about consumers.

True

A billing error is:

being forced to pay for defective goods a mathematical error when the business mails your statement to an incorrect home address goods or services purchased without your authorization

If you must _____ to pay off old debts, then this is a warning sign of debt problems.

borrow

A loan for a motorcycle is an example of:

closed-end credit

Negative implications of using too much credit include:

loss of creditworthiness. bankruptcy. default.

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

True

Under the Consumer Credit Reporting Reform Act, what would happen if a Credit Bureau verifies inaccurate information?

If the Credit Bureau is wrong about information, the consumer can sue for actual, possibly punitive damages.

What are the best reasons to maintain good credit history?

You are less likely to be denied credit. You will have a good FICO score.

A line of is the maximum amount of funds lent to a consumer.

credit

What occupation began using credit first?

farmers

What should you do when you receive a phone call claiming to be from your bank?

Hang up, call your local bank, ask if there is something wrong with your account(s), and go to the bank the next day to verify your account(s)

To calculate the debt payments to income ratio, total monthly debt payments (excluding home mortgage) is divided by the monthly income of the consumer. This is taken directly from the text.

Blank 1: net

A line of credit is a -term loan that is approved before you actually need the money.

Blank 1: short

How does the Fair Credit Billing Act protect consumer credit ratings?

By allowing consumers to challenge charges that are false and avoid having delinquent charges added to their credit history

The _____ handles complaints regarding credit cards online.

CFPB

Which of the following is true?

Creditors can use same collection methods with cosigner as could be used with the borrower.

What is the trade-off for using credit?

Decrease in future available income

Which of the following is something that the Equal Credit Opportunity Act is designed to do?

Ensure that persons are not discriminated against based upon their age Ensure that persons are not discriminated against because of their sex Ensure that persons are not discriminated against because of their race

Which of the following prohibits certain practices by agencies that collect debts for creditors?

Fair Debt Collection Practices Act

Which of the following statements is not true?

If your denial for credit is based on a credit report, you can see your file for a fee.

Where does the Consumer Credit Reporting Act place the burden of proof for accurate credit information?

It places the burden on credit reporting agencies.

Which of the following is not an advantage of using credit?

Misuse of credit can lead to long-term financial problems

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

$60

Long-term financing is more costly than short-term financing because of higher costs.

Blank 1: interest

If you cannot make a payment on a debt when due, contact the at once to work out a modified payment plan.

bank

Which of the following is not true?

The finance charge does not include credit-related insurance premiums.

Which of the following is a prearranged loan for a specified amount of money that is accessed with special checks?

A bank line of credit A revolving check credit

What demographic originally used credit?

Affluent individuals

What is a credit bureau?

A reporting agency that collects information on how promptly people and businesses pay their bills

Why should you keep personal information private?

To avoid identity theft

True or false: The FCBA is a major reason that consumers should buy high dollar items with a credit card rather than a debit card.

True

Consumer credit through installment payments became popular in the early part of the 20th century due to:

the popularity of the automobile

A method to confirm that you can pay for the loan is to confirm if:

you have enough take-home pay to cover monthly expenses, the loan payment, and other expenses.

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

you will pay more in interest charges

Why should you avoid sharing sensitive personal information with strangers?

Strangers can take this information and purchase items in your name.

An example of -end credit is an automobile loan, whereas an example of -end credit would be a credit card.

closed open

is an arrangement to receive cash, goods, or services now and pay for them in the future.

credit

Positive implications of the use of credit include:

increased creditworthiness improved credit score

One convenient aspect of using credit is that multiple charges can be accumulated and paid in one monthly .

payment