CCP Personal Finance Test 2 (Ch.5-7 + TVOM)

FDIC

Prevents a loss of money due to the failure of the insured institution

Mortgage Companies

Provide loans to customers to purchase homes

Car Title Loans

Provide loans with automobile title as security for a high-interest charge often over 200%

Life Insurance Companies

Provides financial security for dependents, offers insurance plus savings and investment accounts and recently expanded to offer investment and retirement planning

Finance Charge

The total dollar amount you pay to use credit including interest costs, service charges, credit-related insurance premiums, or appraisal fees

Experian, Transunion, Equifax

Three main credit bureaus

Savings and Loan Associations

Traditionally specialized in savings accounts and home mortgages and today offer services comparable to banks

Commercial Bank or lawyer

Trusts are commonly created through

Chapter 13 Bankruptcy

Type of Bankruptcy; A voluntary plan proposed to bankruptcy court for those who want to pay a portion of their debt over a period up to 5 years

Chapter 7 Bankruptcy

Type of Bankruptcy; Debtor submits a petition to the court that lists assets, liabilities, and pays a filing fee, many but not all debts forgiven, most assets are sold to pay creditors

Chapter 13 Bankruptcy

Type of Bankruptcy; Payments are made to a trustee who distributes money to your creditors, court may allow you to keep property and pay less than full amount of debts,

Money Market Account/Funds

Type of Savings Alternative; Favorable rate of return, allows of checks to be written, higher minimum balance than regular savings, service charge and/or lower rate if below certain balance

CDs (Certificates of Deposits)

Type of Savings Alternative; Guaranteed rate of return for time, Insured, Possible penalty for early withdrawal, Minimum Deposit

Regular Savings Account

Type of Savings Alternative; Low minimum balance, ease of withdrawal, insured, low rate of return

US Savings Bonds

Type of Savings Alternative; Rate varies with interest rates, low minimum deposit, lower rate redeemed within first 5 yrs

Commercial Banks, Savings and loan associations, mutual savings banks, credit unions

Types of Deposit Financial Institutions

Life Insurance Companies, Investment Companies, Brokerage Firms, Finance Companies, Credit Card Companies, Mortgage Companies

Types of other/non-deposit financial Institutions

Regular Savings Accounts, Money Market Accounts/Funds, CDs, US Savings Bonds

Types of savings alternatives

Rule of 72

Used to find our how fast prices/savings will double (divide ** by annual interest/inflation rate)

Credit Unions

User-owned, nonprofit, cooperative financial institutions with lower fees and lower loan rates with high satisfaction levels

Reduce

Using savings or borrowing ____ your net worth

Accept a variable interest rate, provide collateral to secure the loan, make large cash down payment up front, accept a shorter-term loan

Ways to reduce the lender's risk and your interest rate

Credit Rating

A good ____ is a valuable asset that should be nurtured and protected by limiting your borrowing to your capacity to repay, live up to the terms of contracts, and check your credit report at least once a year

Open End Credit

A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment

Length of credit history, Payment History, Amounts Owed, Types of Credit Used, New Credit

Categories factored into your FICO Score

Wage Earners Plan

Chapter 13 Bankruptcy also known as

Straight Bankruptcy

Chapter 7 Bankruptcy is also known as

Check Cashing Outlets

Charge from 1% to 20% of the face value of a check (avg 2-3%),

Restrictions, Fees and Charges, Interest, Special Services

Checking Accounts need to be evaluated based on

Money Market Fund

Combination savings-investment plan on which you can write a limited number of checks offered by investment companies

Credit Rating Bureaus

Consumer reporting agencies that collect information about consumers and share it with companies you're going to borrow from or work for

Brokerage Firms

Employ investment advisers and financial planners which serve as agents between the buyer and seller for stocks and bonds

Mortgage Loans, Automobile Loans, Installment Loans

Examples of Closed-End Credit

Cards issued by department stores, bank cards, travel/entertainment cards, Overdraft protection

Examples of Open End Credit

Emotional problems, use of money to punish or get even, the expectation of instant comfort among young couples who overuse the installment plan, keeping up with the joneses, overindulgence of children, misunderstanding or lack of communication among family members, amount of finance charges makes it difficult to repay

Frequent reasons for indebtedness

Credit Card Companies

Fund short-term retail landing

Determine your top tax bracket for federal income taxes and subtract this rate from 1.0, multiply the result by the yield on your savings account

How to calculate After-Tax Savings Rate of Return

5

If a debt collector calls you, within ____ days they must send you a written notice of the amount owed, creditors name, your right to dispute the debt

File suit and/or notify federal enforcement agency

If you are denied credit and you check your credit file at the credit bureau and think that the reasons for denial are invalid, you should

60

If you are trying to correct a credit mistake, first call your creditor and if a dispute exits notify the creditor of error in writing within ____ days

CCCS (Consumer Credit Counseling Service)

Nonprofit which is supported by contributions from banks, credit unions, etc, that provides debt counseling for those with serious financial problems by aiding families by helping to set up a realistic budget, providing education about credit, and can administer a debt repayment plan

Investment Companies

Offer money market fund, accounts aren't covered by federal deposit insurance, aka mutual funds

Commercial Banks

Offers a full range of services including checking, savings, lending, etc, and are organized as corporations

30

Once you notify your creditor of a correction of a credit mistake in writing, they must respond within ___ days

APR (annual percentage rate)

Percentage cost of credit on a yearly basis (true rate of interest)

Rate of Return (Yield)

Percentage of increase in the value of your savings from earned interest

Closed End Credit

one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts

Asset management account

All-purpose account offered by investment brokers and financial institutions

Pawnshops, Check Cashing outlets, Payday Loans, Rent to Own Centers, Car Title Loans

"unbanked" Higher interest rate sources of credit that you should stay away from

Asset Management Account

Allow you to purchase investments and track your money more easily

Capacity

5 C's of Credit; Can you repay the loan?

Character

5 C's of Credit; Do you pay bills on time?

Capital

5 C's of Credit; What are your assets and net worth?

Conditions

5 C's of Credit; What economic conditions could affect your ability to repay the loan?

Collateral

5 C's of Credit; What property do you have to pledge that the lender can repossess if you default on the loan?

2nt/P(N+1)

APR (Annual Percentage Rate) =

Amount of Interest Earned/Initial Investment

APY (Annual Percentage Yield) =

Easy access to goods and services, permits purchase even when funds are low, cushion for financial emergencies, advance notice of sales, easy to return merchandise, convenient when shopping

Advantages of Credit

Child Support, Student Loans, Other Loans

After Chapter 7 Bankruptcy you may still owe ___, ___, ___

Banks, Finance Companies, Merchants, Credit Card Companies, Other Creditors, Court Records

Credit bureaus get information from

90

Credit card companies have two billing periods but no longer than ____ days to correct your account or tell you why they think the bill is correct

20%

Debt Pay to Income Ratio should never be over

Monthly Payments/Net Monthly Income

Debt-payments-to-income ratio

Liabilities/Net Worth (Not including Mortgage)

Debt-to-Equity Ratio =

1

Debt-to-equity ratio should not be over

Cost of Credit

Determined by calculating interest using various interest formulas

Temptation to overspend, failure to repay loan may result in loss of income, valuable property and good reputation, misuse of credit can create serious long-term financial problems, damage to family relationships, sand slowing of progress toward to financial goals, doesn't increase total purchasing power, costs money

Disadvantages of Credit

Rent to Own Centers

Lease products to consumers who can own the item if they complete a certain number of payments, interest rates can be over 300%

Bankruptcy

Legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts

More

Longer loans with smaller monthly payments result in ____ total interest

Pawnshops

Make loans on tangible items but charge higher fees than other financial institutions, used for quick cash, charge can range from 3% to 100+%

Finance Companies

Make short and intermediate term loans to consumers and small businesses but at higher rates

250,000

Minimum balance of an asset management account

Overspending from impulse buying and using credit, not having enough liquid assets to pay current bills, Using savings or borrowing to pay for current living expenses, failing to put unneeded funds in an interest-earning savings account or investment program

Mistakes made frequently in managing current cash needs

Interest Earned/Amount in Savings Account

Rate of Return =

Payday Loans

Referred to as cash advances, check advance loans, postdated check loans, and delayed deposit loans, interest rates charged can be 780% or more

Fair Debt Collection Practice Act

Regulates debt collection agencies

Affect family health, loss of job due to garnishments, neglecting the educational needs of children, heavy drinking, neglect of children, marital difficulties, drug abuse, bankruptcy

Serious consequences of debt may include...

Medium-Priced Loans

Sources of Consumer Credit; Loans from commercial banks, savings and loan associations, credit unions

Expensive Loans

Sources of Consumer Credit; Loans from finance/check cashing companies, retailers such as car/appliance dealers, bank credit cards/cash advances, tax refund loans

Cheap Loans

Sources of Consumer Credit; Loans from parents/family members, use your financial assets as collateral

Mutual Savings Bank

Specialize in savings accounts and mortgages, owned by their depositors

Character, Capacity, Capital, Collateral, Conditions

The 5 C's of Credit that creditors look for when you apply for credit

limits increase in APR in the first year, restricts issuers from charging higher interest rates on existing balances, teaser rates must be effective for at least 6 months, issuers must mail statements at least 21 days before payment is due, disclosure statement must be clear and timely, card issuers must post card agreements on the internet

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act :

Truth in lending Law

The federal law that required creditors to disclose the annual percentage rate and the finance charge as a dollar amount

APY (Annual Percentage Yield)

The total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period

Trust

way to manage money as a legal agreement that provides for the management and control of assets by one party for the benefit of another