Chapter 7. Choosing a Source of Credit: The Costs of Credit Alternatives

True or false: Most credit cards allow a grace period on cash advance.

False

True or false: Only about one million Americans belong to credit unions

False

True or false: The two types of credit are closed-end and free credit.

False

True or false: In most cases it is less expensive to borrow money using your certificate of deposit as collateral for a loan than if you use your used car.

True

True or False: Family loans are simple arrangements and can benefit both parties as it required no documentation.

False

Which of the following are the top reasons why consumers can't pay debts when due?

Keeping up with the Joneses, Finance charges, Emotional problems, The use of money to punish

Most automobile financing agreements permit your creditor to __ your car anytime you are in default on your payment.

repossess

Two situations when you should avoid credit are: when you don't__or really want the purchase, and when could pay cash but choose to finance the needed item. (Enter one word per blank)

need

Long-term financing is more costly than short-term financing because of higher__ costs.

interest

The new Credit Card ACT requires creditors to include a warning on the monthly statement about making only the minimum__

payment

Which of the following best explains why credit cards are more dangerous than installment loans.

A credit card is easier to use than taking out an installment loan.

The key piece of inflation that credit card issuers must provide are:

APRs Annual fees Variable rate information Grace Period

Which of the following types of loans are offered by life insurance companies?

Cash value of whole life

Which of the following loans are available to consumers through commercial banks?

Credit card loans Second mortgages Passbook loans [also: Single-payment loans Personal installment loans Check-credit loans]

True or false: Most credit card companies do not charge a fee when a cash advance is made.

False

True or false: The reason why people choose long-term financing is because it is cheaper in the long run.

False

The major provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009:

Limits card issuers' ability to increase the APR on transferred balances during the first year States that teaser rates must stay in effect for at least 6 months. Limit the issuer's ability to increase the interest rate in the first year

Which of the following types of loans are offered by consumer finance companies?

Personal installment loans Second mortgages

Which of the following best explains the flaw in the strategy of borrowing from a finance company?

When you are denied credit from traditional sources, you probably have less ability to afford the higher rate a finance company charges.

Which of the following statement is true?

You must qualify to be a member in order to get a loan at a credit union

If you cannot make a payment on a debt when due, contact the __at once to work out a modified payment plan.

creditor

In straight bankruptcy, many but not all __ are forgiven.

debt

The Truth in Lending law of 1969 requires lenders to state the cost of borrowing as a specific__amount so that consumers know exactly what the credit charges.

dollar

Payday loans are {inexpensive or expensive}__although readily available via check cashiers, finance, companies, and other sources.

expensive

Cash advances required that you pay a transaction__.

fee

Each 1% increase in the ___ rate means a decrease of approximately 1% in the quantity of goods and services you can purchase with a given amount of money.

inflation

There are several reasons that you should borrow form a credit union including their patience in dealing with borrowers who have good reasons for missed payment, and they provide ___service

personalized

A credit counseling organization usually provides credit management classes and helps you devise a credit management____

plan

Looking for credit, aided by Internet searches, is just as important as comparison __for large purchases such as automobile furniture, or major appliances.

shopping

Which of the following is true about a repossession and the borrower's responsibilities after an auction sale of the vehicle by the blank?

The borrower owes the difference between the sale price and the unpaid debt plus legal, towing, and storage costs.

A car processed by a bank. The borrower owed $4000 on the car. At an auction, the car is sold for $3000 and the bank incurred a $150 towing charge. How much, if anything, will the borrower owe after the sale at auction?

$1150 which is the unpaid loan balance and the towing charge [In action that is the result of a repossession, the borrower owes the unpaid balance (not covered by the selling price) and the other costs associated with the repossession.]

A simple interest declining balance loan has the following terms: 8% annual interest rate. $3000 loan, 2 payment: one at the end of the first half year and the last payment at the end of the second half year. What would be the amount of these two payment?

$1620 and $1560

What would be the interest cost(simple interest) for a $3000 loans with a 8% rate for nine months of a years?

$180 [Simple interest= PrincipalRateTime. In this case, time is 9/12(for 0.75 of a year).

On a discount loan of $2000 with $75 interest, how much will you receive for loan proceeds?

$2000-$75=$1925

If you borrow $200 and it cost you $22 in interest with with a service charge $5, what is the financial charge?

$27

A $1000 loans that uses add-on interest has the following terms:8%, one year two payments: one in 6 months and in 12 months. What is the amount if each of these payments?

$540

What would be the interest cost (simple interest) for a $2000 loan with a 6% rate for a Half of a year?

$60

Which if the following is generally considered to be expensive sources of loans?

-Appliance company -Bank credit cards -Finance companies _department stores

The pros and cons of T&E credit cards, such as American Express, include:

-Full payment us due each month -No finance charge is incurred as full payment of the balance owed is due each month -Annual fees are typically high [Full payment of the balance owed is due each month] [A monthly finance charge is not due if the balance is paid in full.]

Which of the following loans are offered by credit unions to consumers? This is found in an exhibit on sources of consumer credit.

-Installment loans -Credit card loans -Share draft loans

Which of the following are ways to lower lender risk and therefore lower the cost of borrowing?

-Only create short-term payment (lower rate and higher payment) -Make a larger down payment -Secure a loan by property or another asset -Choose variable interest rate

Installments loans are a cheaper alternative to credit cards because :

-Their interest rates are often lower than credit card rates -They are cheaper over many months or years when an extended payment period is needed

The three types of credit insurance are:

-credit accident and health -credit life -credit property

Simple interest(I) is calculated as follows: Principal X Rate of Interest X __. This is a one word answer.

Time

True or false. The Fair Debt Collection Practices Act prohibits certain practices by agencies that collect debts for creditors.

True

True or false: Loans fro finance companies and appliance stores tend to be the highest cost loans.

True

True or false: The rule of 78ths us a mathematical formula to determine how much interest has been paid at any point of a loan

True

The interest rate on cash __is often higher than the rate on purchases.

advance

Before you borrow money you should ask yourself if you need a loan, if you can ___ the loan, and if you can qualify for a loan.

afford

The first thing a debtor must do in a Chapter 7 bankruptcy is to draw up a petition listing__ and liabilities or debts for submission to the courts.

assets

Another very expensive way to borrow is a(n)__refund loan. which is possibly more expensive than a cash advance on a credit card. This is a one word answer.

tax

Credit offered by car dealers, such as financing through__, may be less expensive than banks, but the downside is that car dealer may be less willing to discount the price. This is found in the discussion of what kind of loans you should seek.

the General Motors Acceptance Corporation or Ford Motor Credit Corporation