Personal Finance Final Exam Review Ch. 3

A finance company uses the discount method of calculating interest. The loan principal is $5,000, the interest rate is 10%, and repayment is expected in two years. You will receive [$5,000 | $4,000] from the lender.

$4,000

The Rule of 78 loads an inordinate amount of interest charges to the [early | later] months of the loan.

early

After the Credit Card Act of 2009 was passed, late payments dropped but defaults increased.

false

Because no written contract is usually required, borrowing from friends and relatives is advisable.

false

Generally speaking, variable rate loans are desirable if interest rates are expected to increase over the course of the loan.

false

Savings and loan associations dominate the consumer loan market.

false

The more credit cards one has, the better one's credit score.

false

The most common form of open account credit is the debit card.

false

The purchase of credit life insurance is highly recommended by most financial planning experts.

false

Installment loans using the simple interest method

have interest charged only on the monthly loan balance.

The longer the loan maturity, the [lower | higher] the total finance costs will be.

higher

The ____ is really a second mortgage on your home.

home equity line of credit

Interest rates on ____ are typically lower than on any other form of consumer credit.

home equity lines of credit

In the year after the Credit Card Act of 2009 was passed, there was a(n) [increase | decrease] in late payments.

in late payments

When canceling a credit card, you should cut up the card and ____ that you are canceling your account.

inform the issuer in writing

Nancy's take-home income is $3,000 per month, and she currently has $700 monthly consumer debt. According to the general rules of thumb, Nancy [is | is not] in a position to take on additional consumer debt.

is not

The longer the loan maturity, the [lower | higher] the monthly payments will be.

lower

Open account credit is a form of credit extended to a consumer in advance of any transaction.

true

Revolving credit lines are often accessed by writing checks.

true

Student loans are not dischargeable in Chapter 13 bankruptcy proceedings.

true

The cash value of a life insurance policy can be used as a source of loan collateral.

true

The majority of persons filing bankruptcy file Chapter 7 bankruptcy.

true

When the market interest rate goes up, the rate on variable rate loans goes up

true

A proper use of open account credit would be to buy a [food | washing machine].

washing machine

Most creditors [will | will not] be willing to work something out with you if you are having difficulty meeting your payments.

will not

529 plans are best suited for a child [already in college | with several years left before going to college].

with several years left before going to college

As well as being among the cheapest forms of consumer credit, these offer shelters from taxes:

Home Equity loans

The average graduating college senior leaves school with about _______ in debt.

$30,000

____ would be a proper use of credit.

All of these

____ is a benefit of borrowing.

All of these are benefits

Calculating interest using the [discount | simple interest] method will result in the higher APR on a single-payment loan.

Discount

Which of the following are recommended if you loan money to a friend or relative?

Put the agreement in writing.

A credit scoring system might assign points according to your annual income and [gender | age].

age

Besides the finance charge, you should also consider ____ when you shop for a consumer loan.

all of the above

For a person who sometimes pays his entire credit balance and sometimes pays the minimum payment, which calculation method would be the least expensive?

average daily balance excluding new purchases

Rebate cards are most useful for consumers who charge a lot and [maintain | do not maintain] large balances of their cards.

do not maintain

Most bank credit cards have interest rates that will [remain the same as long as you hold the card | be adjusted as interest rates in general rise and fall].

be adjusted as interest rates in general rise and fall

A consumer loan probably would not be used to

buy back-to-school clothes

The highest interest rate installment loans are usually made by

consumer finance companies.

The majority of loans made by savings and loan associations are ____ loans.

mortgage

With open account credit, one can often avoid interest charges if

the account balance is paid in full every month.

Sometimes it may be better to use savings rather than borrow to make a purchase. This would be recommended when

the cost of borrowing is greater than the interest earned on the savings.

A debt safety ratio of 25% might be a signal of financial trouble ahead.

true

Being late on credit payments only 2-3 times per year pay label you a "late payer" in your credit file.

true

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

true

Consolidation loans are often used to help borrowers straighten out a critical financial situation.

true

Credit scoring systems are often used by lenders to determine your creditworthiness.

true

Debit cards look like credit cards, but they work like checks.

true

Having a checking account tells a creditor that you have some experience in managing your own funds.

true

Loans against a life insurance policy do not have to be paid back.

true