Your Money & Credit: Chapter 7

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

rebate

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

Installment

Borrowing from __________ is seldom recommended by financial advisors.

relatives

Using the __________ would be least expensive for the borrower when determining the total amount to be paid to the lender.

Simple interest method

Which of the following statements is true of credit unions?

They provide installment loans to their members.

Which of the following is a nondepository institution?

A consumer finance company

Which of the following is true of a consumer loan?

A consumer loan is used to finance the purchase of goods that are far too expensive.

__________ obtain funds from their stockholders and through open market borrowing.

Consumer finance companies

Which of the following is true of consumer finance companies?

Consumer finance companies make secured and unsecured (signature) loans to qualified individuals.

Calculating interest using the _______ will result in the highest APR on a single-payment loan.

Discount method

T/F: A student loan, like any other loan, can be discharged in bankruptcy.

False

T/F: Consumer loans, like open account credit cards, result from a rather informal process.

False

T/F: Fixed-rate loans are desirable if interest rates are expected to fall over the course of the loan.

False

T/F: If your debt safety ratio works out to 10%, you are relying too heavily on credit.

False

T/F: Loans obtained by life insurance policyholders from their insurance companies are to be repaid on the repayment dates.

False

T/F: The debt safety ratio indicates the total assets owned by an individual.

False

T/F: The repayment of the principal installment loans is made in a lump sum, and the repayment period of installment loans is six to 12 months.

False

T/F: You can borrow, repay, and reborrow from a home equity loan in the same as you can from a home equity credit line.

False

T/F: You can borrow, repay, and reborrow from a home equity loan in the same way as you can from a home equity credit line.

False

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

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

T/F: All other terms being equal a secured loan is cheaper than an unsecured loan.

True

T/F: An asset of value in which the debtor has equity used to secure the principal portion of a loan is called collateral.

True

T/F: If the proceeds from the sale of your repossessed collateral are insufficient to pay off the balance due on your loan, the lender can usually collect the remaining amount from you.

True

T/F: If you borrow from the cash value of your life insurance policy, you do not have to pay it back.

True

T/F: Most consumer loans are made at fixed rates of interest - that is, the interest rate charged and the monthly payments remain the same over the life of the obligation.

True

T/F: Rebates are always more cost effective than the 0 percent annual percentage rate (APR) loans offered on automobile loans.

True

T/F: The cash value of a wholelife insurance policy can be used as a source of loan collateral.

True

T/F: The frequency of longer-term installment loans carrying variable interest rates is increasing.

True

T/F: When loaning money to a friend or family member, it is advisable to lend only an amount that you can afford to give away.

True

T/F: When the interest rate on savings is lower than the interest rate on a loan, it is cheaper to use your savings to make a purchase.

True

Where are you most likely to get the least expensive loan?

Your credit union

When the simple interest method is used to determine finance charges, the interest is calculated based on the:

actual balance of the loan.

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 the installment loan will be the:

add-on method.

The Rule of 78s is used to calculate the __________ when an installment loan is paid off early.

balance due

Sales finance companies ____________.

buy installment loans from retailers

You are borrowing $5,000 at a 9% interest rate. The total finance cost will be the highest in a

higher month repayment plan

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

installment

When the interest rate on savings is two times the interest rate on a loan it is:

less expensive to borrow to make a purchase

Credit unions lend money to qualified people who are their:

members

Consumer finance companies:

offer the highest interest rate on installment loans.

It is better to use your savings instead of borrowing to make a purchase when:

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