Financial Lit CH 10 Questions
A person decides to lease a $20,000 car for three years instead of buying and financing the car with a loan. At the end of three years, the car is worth $11,000. How much will he receive when he returns the car to the dealership?
$0, and he must pay off any damages done to the car.
Why should a person be concerned if she has been offered a "teaser rate" on a loan?
After a short time the rate will most likely go up.
What kind of loan does not build up interest charges while the holder is in school or during the nine months after graduation?
Federal Perkins Loans.
If a person has homeowners or renters insurance, it will protect the person:
If someone falls in her house and sues her.
Why should a person be very careful before agreeing to cosign a loan?
If the borrower defaults on the loan, the lender will expect to receive full payment from the cosigner.
What is the purpose of a loan contract?
It is a legally binding agreement that explains the charges to be paid by the buyer and the obligations of the seller.
Which of the following terms is not correctly matched with its definition? Unsecured loan: No collateral is given in support of the loan. Mortgage Loan: The home serves as the collateral for the loan. Secured loan: The collateral is a person's good credit history and signature. ARM: The mortgage rate can change several times over the life of the mortgage.
Secured Loan.
What is a sound financial reason for a person to choose an ARM over a fixed rate mortgage?
She expects to trade up to a larger house in three or four years.
When we say that a person with a home valued at $300000 and who has an outstanding mortgage of $100000 has a lot of equity in her home, we mean that:
She owns a large fraction of her home.
Who would not have a financially sound reason for taking out a loan?
Someone needs to borrow $1000 to buy season tickets for the Yankees.
Which of the following terms is not correctly matched with its definition? Principal: The amount borrowed. Terms of the loan: Cost of the item if it is not being financed. Down Payment: The amount of money the buyer gives toward the purchase. Repayment Schedule: Number of months needed to repay the entire loan along with the dollar amount of each payment and the interest rate.
Terms of the Loan
Why is it possible that the interest rate advertised for a loan is very different from the annual percentage rate on that loan?
The APR includes fees associated with the application, credit report check, and closing costs in addition to the annual report.
Why does a lender want information about a person's current cash inflow and outflow?
The information helps the lender make a decision on the person's ability to pay back the loan.
How is a $50,000 home equity loan different from a $50,000 home equity line of credit?
There are no interest charges on money used from the line of credit; the equity loan rate is the same as the person's mortgage interest rate.
A disadvantage of paying for a car with a long-term loan is that:
Towards the end of the loan, it is possible to pay more for the car than it is actually worth.
If a person does not have renters insurance and her laptop computer is stolen from her apartment, she:
Will have to replace the laptop computer at her own expense.
Subprime mortgages are:
high interest rate mortgages usually made to people with low credit scores.