Skill Quest Chapter 7
If a loan has a prepayment penalty, there will be _____. a. an additional cost to repay the loan early b. no additional cost to repay the loan early only if the loan is prepaid 3 months before the loan maturity c. an additional cost to repay the loan early only if the loan is prepaid 6 months before the loan maturity d. no additional cost to repay the loan early e. an additional cost to repay the loan early only if the loan is prepaid 3 months before the loan maturity
a
The annual percentage rate (APR) on a single-payment loan for $1,000 at a simple interest rate of 12% is: a. 12% b. 18% c. 10% d. 24% e. 15%.
a
The annual percentage rate is equivalent to the stated rate of interest when the _____ is used to calculate finance charges. a. simple interest method b. double declining balance method c. dollar cost of credit method d. discount method e. average loan balance method
a
To qualify for a subsidized Stafford loan, you must: a. make satisfactory academic progress b. be a graduate. c. be a professional student d. have a sound financial support to repay the loan. e. be an independent student.
a
Which of the following is a feature of a home equity loan? a. The interest paid on a home equity loan is tax deductible. b. A home equity loan is an unsecured loan. c. A home equity loan is generally the first mortgage loan d. A home equity loan is a single-payment loan. e. Interest rates on a home equity loan are higher than on other loans.
a
Which of the following sources of consumer loans often has the most favorable terms? a. Credit unions b. Consumer finance companies c. Savings and loan associations d. Commercial banks e. Asset management companies
a
The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be: a. $278 b. $344. c. $314. d. $380. e. $300.
b
Which of the following is true of a consumer loan? a. A consumer loan can be used chiefly to make repeated purchases of relatively low-cost goods and services. b. A consumer loan is used to finance the purchase of goods that are far too expensive. c. A consumer loan provides credit cards and checks to the consumers. d. A consumer loan results from a rather informal process and involves no negotiated contracts. e. A consumer loan provides a revolving credit to the consumers.
b
Which of the following is true of consumer finance companies? a. Consumer finance companies offer consumer loans at the lowest interest rate. b. Consumer finance companies make secured and unsecured (signature) loans to qualified individuals. c. Consumer finance companies always charge lower rates of interest than commercial banks. d. Consumer finance companies offer consumer loans only for home mortgage lending. e. Consumer finance companies make large loans to low-risk borrowers.
b
Which of the following is true of fixed-rate loans? a. The cost of borrowing fixed-rate loans increases with an increase in the market interest rate. b. Fixed-rate loans are preferable when interest rates are expected to rise. c. Fixed-rate loans are preferable when interest rates are expected to fall. d. The cost of borrowing fixed-rate loans decreases with a decrease in the market interest rate. e. The interest rate on fixed-rate-loans have periodic adjustment dates, at which time monthly payments are adjusted.
b
Which of the following is true of installment loans? a. Installment loans require the principal to be repaid in a single payment. b. Installment loans offer the benefit of tax deductibility of the interest paid on them. c. Installment loans are secured using second mortgages only. d. Installment loans are issued by the federal government only. e. Installment loans are a revolving credit line from which consumers can borrow, repay, and reborrow.
b
_____ loans do not have to be repaid until after you graduate from college a. Perkins and PLUS b. Stafford and Perkins c. Stafford and PLUS d. PLUS and SLS e. Perkins and SLS
b
If you borrow money on a single-payment loan and discover that you cannot pay it back when it is due, you should: a. consolidate the loan. b. negotiate a rollover. c. let the payment become past due. d. pay prepayment penalty. e. file bankruptcy.
b
The annual percentage rate is equivalent to the stated rate of interest when the _____ is used to calculate finance charges. a. dollar cost of credit method b. average loan balance method c. simple interest method d. double declining balance method e. discount method
c
The majority of loans made by savings and loan associations are: a. auto loans. b. home improvement loans. c. mortgage loans. d. consolidation loans. e. education loans.
c
Which of the following is true of a loan collateral? a. Loans secured by collateral always have higher finance charges than unsecured loans. b. Loans are secured by a collateral, which is readily marketable at a price high enough to cover the interest portion of the loan. c. Collateral is an item of value used to secure the principal portion of a loan. d. Collateral is always required by banks to lend to customers with good credit ratings. e. Collateral is an item of value used to secure the interest portion of a loan.
c
Which of the following is true of a loan maturity? a. The longer the loan maturity, the higher will be the monthly payments. b. The longer the loan maturity, the lower will be the total finance cost c. The longer the loan maturity, the higher will be the total finance cost. d. The shorter the loan maturity, the lower will be the monthly payments. e. The shorter the loan maturity, the higher will be the total finance cost.
c
Sometimes it may be better to use one's savings rather than borrowing to make a purchase. This would be recommended when: a. interest rates are falling. b. the borrower has adequate savings. c. interest rates are rising d. the cost of borrowing is greater than the interest earned on the savings. e. the interest earned on savings is greater than the interest paid on the loan
d
When the simple interest method is used to determine finance charges, the interest is calculated based on the: a. average outstanding balance. b. future value of installments c. future value of all finance charges. d. actual balance of the loan. e. present value of all finance charges.
d
Which of the following loan sources is the most expensive? a. Commercial banks b. Sales finance companies c. Credit unions d. Consumer finance companies e. Savings and loan associations
d
Which of the following loan sources is the most expensive? a. Commercial banks b. Sales finance companies c. Savings and loan associations d. Consumer finance companies e. Credit unions
d
Commercial banks generally charge lower interest rates than other lending institutions because: a. their depositors require lower rates. b. they make shorter term loans. c. they get their funds in the open credit market. d. they make secured loans only. e. they usually take only the best credit risks.
e
Sales finance companies a. sell installment loans to banks. b. sell installment loans to retailers. c. lend money to retailers. d. lend money to consumers. e. buy installment loans from retailers.
e
A single-payment loan: a. usually matures in one year or less. b. is generally unsecured and does not have any collateral. c. usually matures in five to seven years. d. is generally used to finance auto purchases. e. is provided by sales finance companies.
a
Consumers whose debt burden has become very heavy might apply for a(n): a. consolidation loan. b. interim financing. c. single-payment loan. d. buy-down loan. e. personal loan.
a
If Liza's debt safety ratio is 15% and her monthly take-home pay is $4,500, which of the following equals to her total credit payments? a. $675 b. $890 c. $500 d. $1,200 e. $450
a
A legal claim that allows creditors to liquidate a loan collateral is a: a. loan application b. lien. c. loan rollover. d. security claim. e. note.
b
Credit unions lend money to qualified people who are: a. policyholders. b. members. c. students d. stockholders. e. employees.
b
The highest interest rate installment loans are usually made by: a. life insurance companies. b. consumer finance companies. c. savings and loan associations. d. credit unions. e. commercial banks.
b
A single-payment loan is advantageous only if: a. calculated using discount method. b. it is unsecured. c. funds will be available to repay the lump sum. d. the interest rate is less than that on an installment loan. e. calculated using simple interest method.
c
Which of the following is recommended if you loan money to a friend or relative? a. Charge interest at a rate comparable to any high-risk security. b. Make the loan due within one year or less c. Put the agreement in writing. d. Make informal transactions for friends and relatives. e. Always consider offering cash as a gift instead of extending a loan.
c
You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the: a. simple interest method. b. discount method. c. past-due balance method. d. double declining balance method. e. add-on method.
e
