Chapter 7 Personal Finance
Emery has a $1,750 loan that will be paid off in one payment at the end of the year. The stated interest rate on her loan is 8.5%. What is Emery's simple interest on the loan?
$148.75 simple interest = P*R*T = 1750*0.085*1
Lee has a $2,000 loan that is to be repaid in two payments, one in the middle of the year, and one at the end of the year. The stated interest rate on his loan is 9.5%. What is the total amount that he will have to pay on the loan?
$2142.50
A simple interest declining balance loan has the following terms: 8% annual interest rate, $2,000 loan, two payments: 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 payments?
1080 and 1040 (2000*0.08*0.5)+(1000*0.08*0.5)
A simple interest declining balance loan has the following terms: 8% annual interest rate, $3,000 loan, two payments: 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 payments?
1620 and 1560
What would be the interest cost (simple interest) for a $2,000 loan with a 6% rate for a half of a year?
60
Andy borrows $350 and makes one payment at the end of one year. The stated interest rate for his loan is 7 percent. What is Andy's annual percentage rate (APR)?
7%
Ronnie purchases furniture for $5,000 by using his credit card. The credit card company charges 19.5% interest and indicates that you must make a minimum payment of 3%. Norma purchases furniture for $5,000 by using her credit card. The credit card company charges 19.5% interest and indicates that you must make a minimum payment of 5%. Which of the following statements is true?
Because Norma's minimum payment is larger, the time required to pay off her credit purchase will be lower than the time required to pay off Ronnie's credit purchase.
Due to the ____________________________, credit card companies are now required to show you how much time it will take to pay off your credit card debt if you make the minimum payment amount and the total interest you will pay by only paying the minimum payment.
Credit Card Accountability Responsibility and Disclosure Act
Which of the following loans are offered by credit unions to consumers?
Credit card loans Installment loans Share draft loans
An example of a travel and entertainment card is ______.
Diners Club
True or false: Family loans are simple arrangements and can benefit both parties and no documentation is recommended.
False
True or false: The two types of credit are closed-end and free credit.
False
True or false: The reason why people choose long-term financing is because it is cheaper in the long run.
False - actually more expensive (people choose it bc it requires smaller payments, making it cheaper in the short-run)
True or false: Only about one million Americans belong to credit unions.
False - over 125 million Americans belong to credit unions
What is the best strategy if you can't make a payment on a debt?
Notify the creditor as soon as possible in an attempt to work out a modified payment plan.
Which of the following items of income and value are protected under a Chapter 7 bankruptcy?
SS payments and unemployment compensation equity in cars household appliances trade tools equity in home
According to the video, which of the following are factors that determine a simple interest calculation? Select the most inclusive answer.
The amount of time for which the principal is borrowed and The amount borrowed or principal amount
Identify the correct statement about a loan with add-on interest.
The interest is calculated on the full amount of the original principal, no matter how frequently the payments are made.
Debbie has a $400 loan and makes 12 monthly payments during the year. The stated interest rate for her loan is 9%. What is Debbie's annual percentage rate (APR)?
Total dollar cost of credit: P = $400, n = 12, interest rate = 9% I = P*interest rate = 400*0.09 = 36 APR: APR = (2*n*I)/(P(n+1)) APR = (2*12*36)/(400(12+1) APR = 16.61%
True or false: Credit cards are convenient, but not always better, to use than installment debt because of the latter's application process and procedures; but that ease of use can lead to overuse.
True
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: Loans from finance companies and appliance stores tend to be the highest cost loans.
True
True or false: The Fair Debt Collection Practices Act prohibits certain practices by agencies that collect debts for creditors.
True
True or false: The purpose of the Truth in Lending law of 1969 was to give consumers the information needed to compare credit costs on various loans.
True
True or false: You should avoid credit when you don't need the purchase and when you can afford to pay cash to acquire the item.
True
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.
With the ________-on interest method, interest is calculated on the full amount of the original principal, no matter how frequently you make payments.
add
The interest rate on cash ______ is often higher than the rate on purchases.
advances
If you have funds available on your credit card, you can obtain a cash advance from
an ATM a bank or credit union
Annual percentage rate is the _______ interest rate quoted by a financial institution on a loan.
annual
The pros and cons of T&E credit cards, such as American Express, include:
annual fees are typically high. no finance charge is incurred as full payment of the balance owed is due each month. full payment is due each month.
Which of the following is generally considered to be expensive sources of loans?
appliance companies department stores bank credit cards finance companies
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 court.
assets
The legal process by which a person, business, or government entity unable to meet financial obligations is relieved of those debts by a court is called __________
bankruptcy
It is said that the least expensive way to borrow is when you borrow on the value of a financial asset. Which of the following loans would meet that test?
certificate of deposit loan life insurance cash surrender value loan
Cash advances are obtained through your ______ card at a bank or through an ATM machine. This is a one-word answer and found in the discussion of cash advances.
credit
One of the intangible costs of bankruptcy is the difficulty obtaining __________ in the future.
credit
The most commonly purchased type of credit insurance is:
credit life insurance
The three types of credit insurance are:
credit property. credit accident and health. credit life.
If you cannot make a payment on a debt when due, contact the ______ at once to work out a modified payment plan
creditor
In a straight bankruptcy, many but not all ______ are forgiven
debts
Under this method, as the balance you owe ____________ after each payment, the interest due will ____________.
decreases; decreases
The Fair Debt Collection Practices Act Blank______ to creditors that collect debts themselves.
does not apply
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 are. This is a one-word answer.
dollar
People who file a Chapter 13 bankruptcy and repay some of their debts may find obtaining credit ______ than people who file a Chapter 7 bankruptcy and make no effort to repay.
easier
Payday loans are (inexpensive or expensive) although readily available via check cashers, finance companies, and other sources.
expensive
Tax refund loans are a(n) ______ way to borrow money in case of a cash shortfall.
expensive
True or false: Most credit card companies do not charge a fee when a cash advance is made.
false
Most credit cards carry a special ______ , based on the percentage of the amount borrowed, that is applied when a cash advance is taken out. This is a one-word answer.
fee
Long-term financing is more costly than short-term financing because of higher_____ costs
finance
A married couple that does not talk about money could be:
having debt problems
If consumers pay only the minimum payment required each month, then they will pay ___________ total interest charges before their debt is repaid.
higher
The interest rate on cash advances is often __________ than the rate on purchases. This is a one-word answer.
higher
As the number of payments during the year _________________, the APR __________________ compared to a lump sum loan.
increases;increases
The rule of 78s formula favors Blank______.
lenders
According to the end of the video, the declining balance method requires that you make ______ payments to pay off a loan and the amount of interest you pay will be _________.
more ; lower
The two major categories or types of credit are ________ -end and closed-end credit
open
According to the video, simple interest is defined as the interest computed on the ______________ amount only and without ____________________.
original principal ; compounding
Which of the following are advantages of borrowing from a credit union?
patient with borrowers personalized service
The new Credit CARD Act requires creditors to include a warning on the monthly statement about making only the minimum ______
payment
Annual__________ rate is the yearly interest rate quoted by a financial institution on a loan
percentage
There are several reasons that you should borrow from a credit union, including their patience in dealing with borrowers who have good reasons for missed payments, and they provide _______ service
personalized
In Chapter 7 bankruptcy, a debtor is required to draw up a ______ listing his or her assets and liabilities.
petition
A credit counseling organization usually provides credit management classes and helps you devise a credit management ___________.
plan
Family members may only charge interest they would have earned on the money if they had deposited it in a ______ account.
savings
The major provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009:
set a consistent due date for each month state that a teaser rate must be good for at least six months limits the issuer's ability to increase the interest rate in the first year
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
The two main activities of the CCCS are:
teaching families how to avoid heavy debt burdens in the future. helping families with debt problems by helping them manage debts.
Installment 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.
One reason some people use payday loans is that:
they are convenient
Simple interest (I) is calculated as follows: Principal × Rate of Interest × _________ . This is a one-word answer.
time
True or false: The rule of 78s is a mathematical formula to determine how much interest has been paid at any point in a loan.
true
The costs of Chapter 13 bankruptcy include court costs, lawyer fees, and _______ fees
trustees'
The costs to Chapter 13 bankruptcy include ______.
trustees' fees and costs court costs attorneys' fees
Which of the following are signs of possible debt problems?
using up savings having little in savings borrowing money to pay old debts getting a credit card revoked
If you are denied credit by a bank or credit union, you should question:
your ability to afford the higher rate charged by a loan company.
