Personal Finance Chap 5

A simple interest declining balance loan has the following terms: 8% annual interest rate, $2,000 loan, 2 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?

$1,080 and $1,040

A simple interest declining balance loan has the following terms: 8% annual interest rate, $3,000 loan, 2 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?

$1,620 and $1,560

What would be the interest cost (simple interest) for a $3,000 loan with a 8% rate for nine months of a year?

$180

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

$27

If you borrow $200 and it cost you $27 in interest with a service charge of $6, what is the finance charge?

$33

What would be the interest cost (simple interest) for a $2,000 loan with a 6% rate for a half of a year?

$60

Which of the following is a prearranged loan for a specified amount of money that is accessed with special checks?

-A bank line of credit -A revolving check credit

What are the five Cs used by lending institutions?

-Conditions that may affect your ability to pay back the loan -Character to pay back a loan -Capacity to pay back the loan -Collateral to pay back loan -Capital to pay back loan

Which of the following is something that the Equal Credit Opportunity Act is designed to do?

-Ensure that persons are not discriminated against based upon their age -Ensure that persons are not discriminated against because of their race -Ensure that persons are not discriminated against because of their sex

Which of the following are the names of credit bureaus?

-Experian -TransUnion -Equifax

Which of the following are questions that lenders may ask to determine a potential borrower's CHARACTER?

-How long have you held your current job? -How long have you lived at your present address? -Have you used credit before?

What is typically in a credit file?

-Whether checks have been returned for insufficient funds -Whether you rent or own your home -Employer information

What are the best reasons to maintain good credit history?

-You will have a good FICO score. -You are less likely to be denied credit.

An example of ____-end credit is an automobile loan, whereas an example of ____-end credit would be a credit card.

-closed -open

Positive implications of the use of credit include:

-increased creditworthiness -improved credit score

Examples of individuals who are legally able to look at your credit report are:

-insurance underwriters. -for some legitimate business need.

If an unauthorized person accesses your credit report, then he/she could:

-pay a fine. -receive jail time.

A billing error is:

-when the business mails your statement to an incorrect home address -being forced to pay for defective goods -a mathematical error -goods or services purchased without your authorization

Experts suggest that you spend no more than what percentage of your net income on consumer payments?

20

The maximum debt payment-to-income ratio that is recommended by experts is ____ percent.

20

How many years does credit history remain on file if you have not declared personal bankruptcy?

7 years

What is interest?

A periodic charge for the use of credit.

What is a credit bureau?

A reporting agency that collects information on how promptly people and businesses pay their bills

Which of the following is not a valid reason for using credit?

Borrowing for everyday expenses

How does the Fair Credit Billing Act protect consumer credit ratings?

By allowing consumers to challenge charges that are false and avoid having delinquent charges added to their credit history

Which of the following is defined as your ability to pay additional debts?

Capacity

One of the 5 Cs of credit is a valuable asset that can be taken to satisfy a loan obligation, which is called ____.

Collateral

How is collateral used in evaluating loans?

Collateral is used when you apply and sign for a loan, pledging some kind of property to secure the loan.

____ users typically pay off their balances each month.

Convenience

What is the trade-off for using credit?

Decrease in future available income

By law, creditors must make accommodations to correct within a consumer's credit and billing history. What law requires this?

FCBA

Credit cards are not particularly common among consumers.

False

Family loans are always simple arrangements and can benefit both parties with little or no documentation.

False

If you find a problem in your bill, you should notify the credit bureau in writing within 60 days.

False

Subtract monthly expenses from income. If the difference is the less than the loan payment, you can afford the loan.

False

The Fair Credit Reporting Act was enacted in 1968.

False

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

False

The three names of the major credit reporting agencies are Trans Union, Equifax, and Experiment.

False

Which of the following is the most valid reason for using credit?

Getting a loan for a medical emergency

Which of the following statements is not true?

If your denial for credit is based on a credit report, you can see your file for a fee.

What is the problem with being irresponsible with credit?

Irresponsibility can lead to long-term debt and financial difficulty.

Why is it not good to spend your entire monthly income on credit card bills?

It is not good if you have no money left for emergencies.

Which of the following is not an advantage of using credit?

Misuse of credit can lead to long-term financial problems

Which of the following is NOT true?

Most credit card companies do not offer a grace period

What is an irresponsible use of credit?

Purchasing goods until your credit limit is reached.

Which of the following is not a disadvantage of using credit?

Responsible use of credit can lead to stability

What type of applications does the ECOA cover?

The ECOA covers applications for mortgages and home improvement loans.

If you purchase a new but defective item that the business will not accept as a return, what does the FCBA say?

The credit card company will allow you to stop payment on such item because it is defective.

Why do banks prefer customers with high credit scores?

The customer who has a high score will often pay bills on time.

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.

Which of the following is an example of using credit to better your life financially?

To attend college

Why should you keep personal information private?

To avoid identity theft

Why are the five Cs used?

To help identify good customers for credit approval

A credit bureau is a reporting agency that collects credit and other information about consumers.

True

Consumer credit dates back to colonial times.

True

Credit is defined as an arrangement to receive cash, goods, or services now with payment in the future.

True

Misuse of credit to purchase a home on credit (assuming you cannot pay for it in cash) can result in default, bankruptcy, and loss of creditworthiness.

True

Purchasing equipment on credit now is using credit now to pay later.

True

The ECOA covers your mortgage application and bans discrimination based on race, color, age, sex, marital status, national origin, and several other factors.

True

The FCBA is a major reason that consumers should buy high dollar items with a credit card rather than a debit card.

True

The trade-off of using credit is it decreases the availability of money to spend in the future.

True

To obtain your FICO score through www.myfico.com you must pay a fee.

True

Using credit is safe, since charge accounts and credit cards let you shop and travel without carrying a large amount of cash.

True

Capacity is the borrower's financial ____ to meet the credit obligations.

ability

With the ____-on interest method, interest is calculated on the full amount of the original principal, no matter how frequently you make payments

add

With the ____-on interest method, interest is calculated on the full amount of the original principal, no matter how frequently you make payments.

add

Capacity is the borrower's financial to meet the credit obligations.

capacity

A borrower's assets that exceed liabilities is called:

capital

When evaluating the 5 Cs of credit, ______ is determined by a borrower's assets or net worth.

capital

A ____-end loan from the bank for personal purposes, home improvements, or vacation expenses is considered installment cash credit.

closed

____-end credit is a one-time loan the borrower pays back in a specified period of time and in payments of equal amounts.

closed

With ____-end credit, you pay back one-time loans in a specified period of time and in payments of equal amounts. With ____-end credit, you pay loans back on a continuous basis and you are billed periodically for partial payments.

closed open

A loan for a motorcycle is an example of:

closed-end credit

A credit file contains your detailed ____ information.

credit

A line of ____ is the maximum amount of funds lent to a consumer.

credit

____ is an arrangement to receive cash, goods, or services now and pay for them in the future.

credit

What occupation began using credit first?

farmers

Closed-end credit is paying back a loan:

in a specified period of time and in payments of specified amounts

A periodic charge for the use of credit is known as ____.

interest

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

interest

Credit allows you to buy clothes today and pay for them in the ____

later

Spending all of your money on credit card bills will:

leave you with no spending money

When reviewing applications for credit:

lenders use the five Cs as a way of determining who is worthy of the credit

To calculate the debt payments to income ratio, total monthly debt payments (excluding home mortgage) is divided by the ____ monthly income of the consumer.

net

Convenience users:

pay off the credit card balance each month in full

The five Cs refer to:

policies that help determine who will receive credit

A credit file contains your detailed information.

private

The Fair Credit Reporting Act of 1971:

regulates the use of credit reports, requires deletion of obsolete information, and allows access of their files to consumers.

If bankruptcy is filed by the consumer, this:

remains in the credit report for up to 10 years

A bank line of credit is also known as:

revolving check credit

Family members may only charge interest they would have earned on the money if they had deposited it in a ______ account.

savings

A line of credit is a ____-term loan that is approved before you actually need the money.

short

Your FICO score is:

the score of your credit history

A reason why people tend to choose long-term financing is:

they want to make smaller monthly payments

To calculate the debt payments to income ratio:

total monthly debt payments (excluding home mortgage) are divided by net monthly income

Banks prefer customers with high credit scores

true

Banks prefer customers with high credit scores.

true

If you decide to use credit, make sure the benefits of ____ now outweigh the costs of credit.

usage

Lenders may determine a potential borrower's character by all of the following except:

verifying the potential borrower's income.

A method to confirm that you can pay for the loan is to confirm if:

you have enough take-home pay to cover monthly expenses, the loan payment, and other expenses.