personal finance 6.02
Describe why a person is spending future income when using credit.
because interest will have to be paid later on
Provide two examples of when credit, if used responsibly, can be a positive
buying a car and keeping up with payments, buy a house and keep up with payments
A loan which the borrower must repay the amount in a specified number of equal payments.
closed-end credit
Drew is considering purchasing a new vehicle. What are three things he should review closely on the contract?
interest fees, how long it will take to pay it off, if the terms are favorable
A line of credit established in advance so the borrower does not have to apply for credit each time new credit is desired.
open-end credit
A loan based on the value of personal property
pawn loan
Short‐term loan that provides immediate cash by securing a borrower's written check or receiving authorization for automatic withdrawal from the borrower's depository institution account.
payday loan
Short‐term cash advance secured by a taxpayer's expected tax refund.
refund anticipation loan
Tangible items leased with the condition that the item will be owned by the renter if the term of rent (contract) is completed.
rent-to-own
Laura is using a rent‐to‐own store to purchase a computer valued at $1,000. She is paying $25 per week for 104 weeks (2 years). Why might this loan contribute negatively to her financial well‐being?
she will end up paying 2600 in total because of interest rates
The borrower gives the lender his/her automobile title in exchange for a set amount of cash.
title loan
Edward is considering buying a home using credit. What are three questions he should ask himself to ensure he is using credit responsibly?
-could he wait to save money for the purchase? -does the purchase fit my budget? -what is the opportunity cost of postponing the payment?
Jonna is considering using a refund anticipation loan to have money for a deposit on a Caribbean vacation. What are two alternatives she should consider before using this type of credit?
-waiting until she has the funds -use savings to pay for the vacation
The terms of a loan are always consistent for the length of the loan. (T/F)
F
An example of closed‐end credit is a secure credit card. (T/F)
T
Annual interest rates for alternative loans can be as high as 300% (T/F)
T
Depending on the credit terms, if a person has a late payment, consequences including higher interest rates, may occur. (T/F)
T
Evaluating the purpose of credit is an important consideration to using credit responsibly. (T/F)
T
If an individual does not meet the credit terms for a pawn loan, the lender will keep the property. (T/F)
T
All lenders check a person's credit report and score during the loan approval process. (T/F)
F