Personal Finance: Unit 3 - Credit and Borrowing
The seizing of collateral by a lienholder is ____.
repossession
Chapter 7 Bankruptcy
A court requires a debtor to liquidate assets to pay creditors and then forgives most remaining debts.
Select THREE things to look for on a credit report.
unfamiliar credit requests that might indicate fraud errors regarding payment history mistakes in personal information
Which action has a negative effect on one's credit score?
utilizing a high percentage of one's credit limit
Which factor will not affect your credit score?
your marital status
credit cards
Lenders earn money from the interest and fees charged to cardholders.
Foreclosure
The Formal process begins when a borrower is more than 120 days late on payments and ends in the sale of the property.
True or False: Close paid-off accounts if tempted to add additional debt.
True
True or False: Consolidate a debt with another that has a lower interest rate.
True
True or False: Declare bankruptcy only as a last resort.
True
True or False: Make extra payments to reduce the principal quickly.
True
______ debt is money borrowed without having to provide collateral.
Unsecured
prepayment penalty
a fee assessed for paying down or paying off a mortgage within a defined time period
title
a legal document recording ownership of property
Bankruptcy
a legal remedy allowing a debtor to reorganize or eliminate responsibility for debt
bankruptcy
a legal remedy allowing a debtor to reorganize or eliminate responsibility for debt
installment credit
a loan in which a borrower makes scheduled, periodic payments until the face value is repaid
collateralized credit
a loan secured by an asset that the lender may legally seize in case of default
Credit Utilization
a measure of how much credit has been taken out compared to the available credit limit
A(n) ____ is a failure to repay a loan.
default
To fail to repay a loan is to ______.
default
A lender may seek a(n) ____ judgment to recover losses not covered by foreclosure or repossession.
deficiency
A(n) _______ is the monthly interest charged on any balance after making an on-time payment.
finance charge
Which answer is NOT a form of installment credit?
credit card; Common forms of installment credit include auto loans, mortgages, student loans, and personal consumer loans.
Consumers may request a free ___ from credit reporting agencies detailing their credit activity.
credit report
Timeliness of payments, the simultaneous opening and closing of multiple accounts, and length of credit history affect one's ____.
credit score
The snowball approach to paying down debt focuses on the ____ debt first.
smallest
The ____ approach is a way to pay down debt by first dealing with the smallest debt.
snowball
It might be wise to ____ loans if one can save on interest expenses.
consolidate
origination fee
a fee covering costs in processing a loan
Where can one go to get a free credit report every 12 months?
the Annual Credit Report website
annual percentage yield
the annual rate charged for borrowing that accounts for compounding
annual percentage rate
the annual rate charged for borrowing that includes interest and any other costs or fees
prime rate
the interest rate at which banks lend money to one another as determined by the Federal Reserve
Deficiency Judgment
the legal pursuit of repayment for a loss not recovered through foreclosure or repossession
line of credit
the maximum amount that may be borrowed in a revolving credit account
loss mitigation
the process by which lenders work with debtors who are late on payments to limit losses
Repossession
the seizing of collateral by a lienholder
repossession
the seizing of collateral by a lienholder
A(n) ____ is a legal record showing ownership of property.
title
Ownership of property is legally recorded on a(n)_____.
title
consolidate
to combine
refinance
to pay off a loan with a new loan
liquidate
to sell off assets
Steps of Foreclosure:
1. The formal foreclosure process begins when a borrower is more than 120 days late on payments. 2. The lienholder files a Notice of Default and Intent to Accelerate informing the borrower that she must make the loan good within 20 days. 3. The notice of Sale is filed with the county clerk 21 days before foreclosure sale. 4. The property is sold at auction and the sheriff evicts the occupant if he refuses to leave voluntarily.
How much would a cardholder pay for a cash advance of $500 if the fee is 5% of the amount or $10 (whichever is greater)?
25
Chapter 13 bankruptcy
A court approves a repayment plan, and debtors are allowed to keep their assets.
title loan
A borrower might lose her car if she cannot repay this short-term loan with APR costs exceeding 200%.
Chapter 7 bankruptcy
A debtor must liquidate assets, but most remaining debts are forgiven by the court.
Chapter 13 Bankruptcy
A debtor perfects her assets by preparing a court-approved repayment plan to reorganize finances.
deficiency judgment
A lender pursues repayment for a loss not fully covered by repossession or foreclosure.
repossession
A lienholder seizes collateral, such as an automobile, when a borrower defaults on a loan.
repossession
A recovery agent may go to great lengths to seize a vehicle as long as he follows the law.
peer-to-peer lending
Also known as crowdlending, this loan type allows lenders to bypass banks to match individual lenders and borrowers.
collateralized loan
An asset, which the lender may seize if the borrower defaults, secures the loan.
Why do auto loans tend to have higher interest rates than mortgages?
Automobiles decline in value quickly, making homes better collateral.
Which statement is NOT true about bankruptcy?
Bankruptcy only hurts the debtor, not the lenders.
Card issuers make money by charging fees and interest to cardholders.
Credit Card
This card is tied to a revolving credit account with a line of Credit.
Credit Card
_______ issuers make money by charging interest and collecting fees from cardholders.
Credit Card
A(n) ____ is a listing of financial activity prepared by a credit reporting agency and can periodically be obtained for free.
Credit Report
An individual's ____ measures the risk a lender assumes when extending credit to that individual.
Credit score
The card is tied to a bank account and works much like a paper check.
Debit Card
The cardholder may withdraw cash from an ATM or receive cash back from a merchant without fees.
Debit Card
This card provides greater protection in case of fraud or theft.
Debit Card
Which answer is NOT a good or desirable strategy for paying down debt?
Declare Bankruptcy
default
Failure to pay back a loan
True or False: Do not include medical bills or home equity loans when totaling debt.
False; Always include any medical bills or home equity loans when totaling debt.
True or False: Target the debt with the lowest interest rate first.
False; Target the debt with the highest interest rate first.
Which source is NOT a way to find out your credit score?
Input your Social Security number into a federal credit score database. Ways to find out your credit score: Visit a credit counselor Use a credit score service Purchase a score from a credit reporting agency
Title loan
Many borrowers lose their vehicle by failing to repay these loans that can have APRs over 200%.
Two facts about Chapter 7 bankruptcy
Most remaining debts are forgiven. The court requires the debtor to liquidate liquid assets.
What happens if a cardholder pays off the balance during the grace period?
No interest will be charged.
secured/prepaid credit cards
One can build credit through this form of credit requiring a deposit equal to the credit line.
What is the best strategy for using the Annual Credit Report website?
Rotate report requests every four to six months.
Facts about bankruptcy
The bankruptcy remains on the debtor's credit report for seven to ten years. Bankruptcy court and lawyer fees are expensive. Bankruptcies are part of the public record, revealing the debtor's personal business.
installment credit
The borrower makes periodic, scheduled payments until the loan is repaid.
How does the prime rate affect credit cards with variable interest rates?
The card interest rate increases or decreases with changes in the prime rate.
What is the benefit of collateralized credit to consumers?
The collateral allows lenders to offer lower interest rates.
installment credit
The debtor makes periodic, scheduled payments until the principle is repaid.
Which answer is NOT a consequence of declaring bankruptcy?
The debtor might have to serve several weeks in prison.
Two facts about Chapter 13 bankruptcy
The debtor must make the required monthly payments but is allowed to keep certain assets. The debtor must present the court with a payment plan to reorganize his finances.
Secured/prepaid credit cards
This Form of credit requiring a deposit equal to the credit line ideal for a person seeking to build credit.
Merchant card
This form of credit usually offers a discount and/or perks when used to purchase from one store.
Consumer loan
This loan is used to purchase automobiles, home renovations, or other short-term loans.
consumer loan
This loan is used to purchase things like home renovations, Christmas loans, or automobiles.
home loan
This loan spreads payments over a period of 15 to 30 years, and in the early years of the loan, the consumer is likely to pay more interest than principal.
Payday loan
This short-term loan is borrowed against a paycheck and charges fees and very high interest rates.
Commercial loan
This type of loan can be difficult to obtain because small business ventures are risky and often lack security.
Title loan
This type of loan charges an APR that may exceed 200% and often leads to a borrower losing his automobile.
Which strategy is NOT a good one for repaying debt?
Transfer the balance every six months to avoid payments.
Amanda has $1,050 per month to apply toward her debt. Select the THREE best strategies that Amanda could use.
Use the extra $424 left after making minimum payments to snowball her auto loan in just two months. Consolidate the balance of credit cards #1 and #3 into credit card #2 because it has a much lower interest rate of 7.99%. 3?
Secured/prepaid credit cards
Using this card requires a deposit that is equal to the credit limit is a great way to build credit.
foreclosure
When a homeowner fails to make payments over a period of time, eviction is the likely result.
Which of these debts would it make sense for a person to pay off first?
a $2,000 credit card balance at 22.99%
Foreclosure
a bank's takeover of a home once the homeowner can no longer pay for the home loan
foreclosure
a bank's takeover of a home once the homeowner can no longer pay for the home loan
Credit Score
a cumulative score that rates one's level of risk to a lender when borrowing money
Personal Identification Number (PIN)
a number assigned to an account holder to validate transactions
crowdlending
a peer-to-peer lending service matching individual lenders and borrowers
billing cycle
a period during which the balance of credit card transactions accumulates
recovery agent
a person sent out by a lienholder to reclaim property
perk
a reward or incentive for a customer
cash advance
a short-term loan charged to a credit card
Credit report
a summary of personal credit activity prepared by a credit reporting agency
revolving credit
access to money that may be borrowed at any time and for any reason up to a maximum amount set by the lender
grace period
an interest-free period during which a cardholder can make a payment
Which statement is NOT something to be concerned about on a credit report?
an offer to purchase your credit score
Cards with ___ often offer additional services that are not offered alongside other cards.
annual fees
The _______ is the annual rate charged for borrowing that includes base interest and other fees.
annual percentage rate
Declaring ____ is expensive, appears in the public record, hurts lenders, and prevents one from getting credit for seven years or more.
bankruptcy
A credit score measures the ___.
borrower's risk of defaulting
The first step in reducing debt is to ___.
calculate how much debt you have
A short-term loan charged to a credit card is a(n) ______.
cash advance
A(n) ____ loan is secured by an asset that the lender may seize if the borrower is unable to keep up with payments.
collateralized
The annual percentage yield (APY) accounts for ______ when computing interest expenses.
compounding
A(n) ____ is a bank's takeover of a home and eviction of the homeowner when the homeowner fails to make payments.
foreclosure
The ______ period is a time during which a cardholder may pay off a card balance without incurring interest.
grace
The ____ is a time during which a cardholder may pay off the entire balance in order to avoid paying interest.
grace period
A student loan and an auto loan are examples of ______ credit.
installment
An auto loan is an example of ___ credit.
installment
The features of ___ credit include a predetermined length known as the term of the loan.
installment
Managing debt begins with ___.
knowing how much debt you have
A ___ might be ideal for a small business that requires financial flexibility to meet changing market conditions.
line of credit
A(n) ______ is the maximum amount a borrower may borrow in revolving credit account.
line of credit
To ___ is to sell off all assets.
liquidate
Lenders may use ____ to work with borrowers who are behind on payments.
loss mitigation
unsecured debt
money loaned without requiring collateral
Utilizing a high percentage of one's credit limit can ___ affect one's credit score.
negatively
A(n) _____ is a fee covering a lender's costs when processing a loan.
origination fee
Proprietary
pertaining to ownership of a product, process, or information, that prevents others from using it
To ____ is to pay off one loan by taking out a new loan.
refinance
To pay one loan off with a new one is to ____.
refinance
The maximum amount that a borrower may borrow from a(n) ____ credit account is the credit limit.
revolving
