Chapter 7

Which of the following statements regarding a consumer loan is true?

A consumer loan is used to finance the purchase of very expensive items.

Mason Corporation borrows funds for the expansion of its business. The loan is secured with the office building. Therefore, the office building serves as _____ for the loan.

collateral

A _____ loan is intended to help consumers who have an unhealthy credit situation caused by overusing their credit.

consolidation

If a loan has a prepayment penalty, there will be an additional cost to repay the loan early:

if the lender wants to recover part of the full interest that would have been earned.

A(n) _____ loan is repaid in a series of fixed, scheduled payments rather than in a lump sum.

installment

A legal claim that allows lenders to liquidate loan collateral, in case the borrower defaults, is called a:

lien.

The most common use of consumer loans is to:

purchase a car.

if you don't have much down payment money, a _____ can effectively act as the cheapest source of down payment.

rebate

A loan rollover means that:

the loan is paid off by taking out another loan.

Rebates are always more cost effective than the 0% annual percentage rate (APR) loans offered on automobile loans.

true

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

true

The rate of interest charged on _____ loans changes periodically in keeping with prevailing market conditions.

variable-rate

You should consider your _____ before you take on a large consumer loan.

financial plans

Credit unions lend money to qualified people who are their:

members

Borrowing from _____ is not advisable.

relatives

Most single-payment loans are secured by:

collateral.

From a financial planning perspective, you need not worry about the size of monthly payments when taking a loan.

false

Which of the following is a feature of a home equity loan?

The interest paid on a home equity loan is tax deductible.

Which of the following statements regarding loan collateral is true?

Collateral is always required by banks to lend to customers with good credit ratings.XXXXX

Which of the following sources of consumer loans often has the most favorable terms for borrowers?

Credit unions

Which of the following statements regarding fixed-rate loans is true?

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