chapter 7
Home equity loans are similar to home equity credit lines as they are also not secured with any collateral.
false
If your debt safety ratio works out to 10%, you are relying too heavily on credit.
false
Loans obtained by life insurance policyholders from their insurance companies are to be repaid on the repayment dates.
false
Only stocks can be used as collateral for personal loans.
false
The add-on method is less expensive than the simple interest method when the stated rates of interest are identical.
false
The debt safety ratio indicates the total assets owned by an individual.
false
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 recommended if you loan money to a friend or relative?
put the agreement in writing
If you don't have much down payment money, a ____________ can effectively act as the cheapest source of down payment.
rebate
Which of the following is true of loan collateral?
Collateral is an item of value used to secure the principal portion of a loan.
Borrowing from ____________ is seldom recommended by financial advisors.
relatives
If the add-on method is used to calculate a finance charge of $150.80 on a $2,200 loan, the amount to be ____________.
repaid is $2,350.80
If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan, the amount to be ____________.
repaid is $2,400
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 is true of loan maturity?
The shorter the loan maturity, the higher the monthly payments.
Which of the following statements is true of credit unions?
They provide installment loans to their members.
If Liza's debt safety ratio is 15% and her monthly take-home pay is $4,500, which of the following equals her total monthly payments?
$675
You are borrowing $5,000 at a 9% interest rate. The monthly payments will be the highest in a ____________.
12 month repayment plan
Jenny's monthly take-home pay is $5,000, and her total monthly payments are $1,000. Which of the following is Jenny's debt safety ratio?
20%
You are borrowing $5,000 at a 9% interest rate. The total finance cost will be the highest in a ____________.
48 month repayment plan
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.
Which of the following is true of consumer finance companies?
Consumer finance companies make secured and unsecured (signature) loans to qualified individuals.
Which of the following is true of fixed-rate loans?
Fixed-rate loans are preferable when interest rates are expected to rise.
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.
a collateral
Consumers whose debt burden has become very heavy might apply for:
a consolidation loan
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
Fixed-rate loans are desirable if interest rates are expected to fall over the course of the loan.
false
Most single-payment loans are secured by ____________.
collateral
____________ obtain funds from their stockholders and through open market borrowing.
consumer finance companies
If the add-on method is used to calculate a finance charge of $100.80 on a $1,800 loan, the amount to be ____________.
disbursed to the borrower is $1,800
A loan rollover means that:
the loan is paid off by taking out another loan.
A(n) _____ loan is a loan that is repaid in a series of fixed, scheduled payments rather than in a lump sum.
installment
The ____________ on a student loan is (are) sometimes tax deductible.
interest paid
A single-payment loan used to finance a purchase when the cash to be used for repayment is known to be forthcoming in the near future is a form of _____.
interim financing
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
When the interest rate on savings is half the interest rate on a loan, it is ____________.
less expensive to use your savings to make a purchase
A legal claim that allows creditors to liquidate loan collateral is a:
lien
A legal claim that allows lenders to liquidate loan collateral, in case the borrower defaults, is called a ____________.
lien
To qualify for a subsidized Stafford loan, you must:
make satisfactory academic progress.
A single-payment loan:
matures in one year or less
Credit unions lend money to qualified people who are their:
members
Most loans made by savings and loan associations are:
mortgage loans
If you borrow money on a single-payment loan and discover that you cannot pay it back when it is due, you should:
negotiate a rollerover
Consumer finance companies:
offer the highest interest rate on installment loans.
Using the ____________ would be least expensive for the borrower when determining the total amount to be paid to the lender.
simple interest method
When comparing two installment loans with the same principal and annual percentage rate (APR), the loan with ____________.
the longer maturity will have the lower monthly payment and the higher total costs
Commercial banks are able to charge lower interest rates than other lending institutions because:
they usually take only the best credit risks
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
Parent Loans for Undergraduate Students (PLUS) loans are made to the parents or legal guardians rather than to the students.
true
Rebates are always more cost effective than the 0 percent annual percentage rate (APR) loans offered on automobile loans.
true
The frequency of longer-term installment loans carrying variable interest rates is increasing.
true
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
When the interest rate on savings is higher than the interest rate on a loan, it is less expensive to borrow to make a purchase.
true
The rate of interest charged on ____________ loans changes periodically in keeping with prevailing market conditions.
variable-rate
You are borrowing $1,000 with an APR of 10% and a loan maturity of one year. Total interest charges will be the highest when ____________.
you make one payment in full at the end of the year
