CH 9 Personal Finance Loans
Financial institutions provide home equity loans up to a maximum of 70% of the value of the equity in a home.
false
It is usually better to lease a vehicle than buy one, since you are not responsible for the repairs or maintenance on a leased car.
false
Leasing a car is a good option if you drive many miles a year.
false
Shopping for automobile insurance should begin immediately after you close the deal on the car
false
even an unsecured personal loan should be backed by collateral
false
in determining the amount of your loan, you should ask for about 20% more than you need in order to give yourself financial flexibility in the future
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in securing personal loans from family members or friends, the loan agreement should be verbal or just consist of a "gentlemen's understanding"
false
on an amortization schedule, more interest and less principle is paid each months the loan matures
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the monthly payment for a loan is dependent only on the size of the loan and the interest rate
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when applying for a personal loan, you will be required to fill out a loan application but you will seldom need a personal balance sheet or personal cash flow statement
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longer maturities for loans results in lower monthly payments and therefore make it easier to cover payments each month
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the most common source of financing is a personal loan from a financial institution
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when borrowing money from a family member or friend, the loan agreement should be in writing and signed by all parties to avoid any possible misinterpretations
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loan that is not backed by collateral
unsecured loan
rate that measures the finance expenses
APR
Collateral A) gives the lender additional recourse if the payments are not made. B) is used on unsecured loans. C) increases the interest rate on loans. D) is required on all loans.
a
Common practices used by dishonest lenders include all of the following except the lender A) prohibiting the borrower from purchasing insurance or other financial services as a condition of the loan. B) charging high loan fees which cause financing costs to be much higher than the quoted rates. C) requiring that the borrower purchase insurance or other financial services. D) having a large balloon payment that will require additional financing to pay it off.
a
Having a longer term loan A) costs you more interest and therefore increases the cost of your loan. B) makes your monthly payments larger. C) is almost always the best alternative for credit users. D) gives you access to additional sources of financing.
a
In making the purchase versus leasing decision, it is important to remember that A) dealers may impose an additional mileage cost. B) leasing is less risky than a purchase. C) leasing is less expensive that a purchase. D) you won't be required to pay maintenance costs on the leased car.
a
Personal preferences for a car include all of the following except A) considering what kind of car you really want, regardless of what you need. B) the size of the car. C) the price of the car. D) the size of the engine and fuel economy.
a
The loan contract identifies all but which of the following? A) Credit score B) Amount of the loan C) Interest rate D) Loan repayment schedule
a
The loan contract identifies all of the following except A) loan officer. B) maturity. C) loan repayment schedule. D) collateral.
a
Which of the following statements about student loans is not true? A) If you don't complete your education, you will not have to pay back your student loan. B) A school's financial aid office is one of the best sources of information on student loans. C) Both the federal government and financial institutions participate in the student loan program. D) Interest is often deferred and there are some tax savings on the interest paid on student loans.
a
Which of the following would probably not be required when applying for a personal loan? A) A personal r sum B) A personal balance sheet C) A personal cash flow statement D) A loan application
a
automobile insurance rates are likely to differ for all of the following reasons except some cars A) are more popular than others. B) cost more to repair after accidents. C) are more common theft targets. D) are higher priced.
a
four components of a loan contract
amount of loan, interest rate, loan repayment schedule, collateral
15) Which of the following items would a personal loan be a better option than a credit card for a college student? A) Car maintenance expense B) Tuition and dorm fees C) Trips home for the holidays D) Tickets to sporting events
b
All of the following are true regarding a cosigner on an account except A) the cosigner is responsible for any unpaid balance. B) the lender may not seize the assets of a cosigner. C) cosigning an account is a big liability and should be taken seriously. D) cosigning on a loan can restrict the amount that the cosigner is able to borrow.
b
Disadvantages of leasing a vehicle include all of the following except A) no equity in the car. B) cost of finding a buyer for the car at the termination of the lease. C) responsibility for maintenance costs. D) additional charges beyond the monthly lease payments.
b
Each of the following provide personal loans except A) commercial banks. B) insurance companies. C) finance companies. D) credit unions.
b
Financial institutions provide home equity loans up to ________ of the value of the equity in a home. A) 75 percent B) 80 percent C) 70 percent D) 85 percent
b
In a loan repayment schedule, the term amortized refers to A) the method by which interest is calculated. B) the repayment of the principal through a series of equal payments. C) the life of the loan. D) assets used to back the loan.
b
Making extra payments on a loan does all except which of the following? A) Reduces the total amount of interest paid B) Gives you extra income for living expenses C) Reduces the maturity of the loan D) Helps assure your good credit rating
b
Personal loans include the following except A) car loans. B) mortgage loans. C) student loans. D) home equity loans.
b
Regarding the amount of money borrowed on a loan, all of the following are true except A) the amount is based on how much the lender believes you can pay back in the future. B) you should borrow slightly more than you need to cover future inflation. C) you should only borrow the amount you need. D) you will have to pay interest on the entire amount.
b
The APR measures the finance expenses (including interest and all other expenses) on a loan on a(n) A) quarterly basis. B) annualized basis. C) monthly basis. D) daily basis.
b
The Truth-in-Lending Act (1969) requires which of the following? A) Adherence to the interest rates established by the Federal Reserve B) Specifying a standard loan rate C) Disclosure of only interest charges but no other fee D) All of the above
b
The document that specifies the term of the loan as agreed to by the borrower and lender is called the A) loan repayment schedule. B) loan contract. C) loan application. D) terms of agreement.
b
The more expensive the car, the ________ the payments, and the ________ you can put away in other investments. A) higher; more B) higher; less C) lower; less D) lower; more
b
The personal loan process with a financial institution requires all of the following except A) filling out an application. B) sitting through an interview. C) negotiating the loan contract. D) negotiating the interest rate.
b
Buying a new car on line is just about as efficient as buying an airline ticket or a book.
false
What is the correct chronological order of the items listed below? A) Good credit history, loan contract, repayment schedule, loan application B) Good credit history, loan application, loan contract, repayment schedule C) Good credit history, repayment schedule, loan application, loan contract D) Good credit history, repayment schedule, loan contract, loan application
b
When assessing the condition of a used car, you should carefully consider all of the following except A) the condition of the interior. B) the insurance premium the previous owner paid. C) the condition of the exterior. D) the history of routine maintenance.
b
When considering how much money to spend on the purchase of a new car, you must consider how your choices affect your spending on other needs. The ________ solution limits your purchases to what you can afford pay off when your credit card bill arrives each month. A) maximum debt B) limited debt C) no debt D) minimum debt
b
Which kind of loan generally has the lowest interest rate charged? A) Unsecured loan B) Secured loan C) Cash advance D) Vacation loan
b
Which of the following is not an interest rate calculation method discussed in the text? A) Annual percentage rate or APR B) Sum of the digits interest C) Simple interest D) Add-on interest
b
Which of the following is not usually used as collateral for a loan? A) A boat B) Clothing C) A car D) A house
b
Which of the following is the most common source of financing for personal loans? A) Family and friends B) Financial institutions C) Credit cards D) Sales finance companies
b
You have a home with a market value of $200,000. Your total equity in the home is $40,000. The maximum home equity loan available if the bank will loan 80% based on equity invested is A) $28,000. B) $32,000. C) $112,000. D) $128,000.
b
If you agree to allow the lender to take your computer in the event you fail to make payments, the loan is which of the following? A) Amortized B) Unsecured C) Secured D) Interest free
c
If you always drive cars many miles and keep them for 10 years, it would probable be best to A) lease a new car. B) lease a used car. C) buy a new car. D) buy a used car.
c
If you are considering trading in a used car on your new one, it is best to A) tell the dealer right away so he can figure your trade-in credit against the purchase of your new car. B) not trade the car in, but rather sell it yourself to someone else. C) make the trade-in deal a separate transaction for the new car deal. D) not be too concerned about the value given, since dealers are required to give you at least blue
c
In the past you have purchased cars that you have driven for over 10 years or more. The mileage on these vehicles usually exceeded 100,000 and therefore you just give them to one of your teenaged nieces/nephews or your grandchildren. Based on this history, your primary financial selection criteria will be A) resale value. B) financing rate. C) repair expense. D) personal preference.
c
In which of the following scenarios would you favor leasing over purchasing a car? A) The miles that you drive each year varies significantly and is hard to predict B) Repair expenses on the car are very low C) The car in question is one whose value depreciates rapidly D) All of the above
c
Personal loans from family members or friends A) are not good sources of financing. B) are more expensive than loans from other sources. C) should have a loan agreement in writing to avoid problems later on. D) are not desirable from the lender's point of view.
c
Regarding automobile insurance, A) the best time to shop for rates is while you are at the car dealership. B) most cars cost the same to insure if the driver is the same. C) it is better to compare costs before you commit to buying a particular car. D) you can lower your costs by buying a more expensive car that is less likely to have accidents.
c
The ________ the maturity of a loan, the ________ the payments. A) longer; smaller B) shorter; larger C) Both A and B D) shorter; smaller
c
The advantage to financing a car for a long period of time (of up to seven years) is A) you will build equity in the car faster. B) the car will be worth more by the time you pay off the loan. C) your monthly payment will be lower. D) you will be able to sell the car before you pay off the loan and have money to pocket.
c
The size of the monthly payment on a loan is dependent on all of the following except A) principal borrowed. B) interest rate. C) your age. D) maturity.
c
What should you not consider when selecting a vehicle? A) Personal preferences B) Insurance costs C) All parts are American-made D) Resale value
c
When negotiating the price of any car, which of the following statements is true? A) The car dealer earns a small profit if the customer doesn't negotiate and pays full price. B) Dealers that negotiate will purposely price cars below the price for which they are willing to sell the car. C) Sales people are trained to act as if they are giving the car away. D) The salesman is uncertain of the price at which he can sell you the car until you begin
c
Which of the following is a true statement about student loans? A) All student loans are provided directly to the student. B) All student loans are provided to parents of students. C) Interest payments are often deferred until the students graduate and enter the workforce. D) Interest is tax-free to those in all income levels.
c
Which of the following items must you provide when applying for a loan in order to prove you have collateral to back your loan? A) Personal cash flow statement B) Paycheck stub C) Personal balance sheet D) Credit card statements
c
Which of the following methods of calculating interest is the most expensive? A) Annual percentage rate or APR B) Simple interest C) Add-on interest D) Sum of the digits
c
over the life of a loan, the payment to principal ________ and the portion to interest expense ________. A) increases; increases B) decreases; increases C) increases; decreases D) decreases; decreases
c
assets of a borrower that back a secured loan
collateral
14) A personal loan is different from a credit card in all of the following except it A) is normally used to finance one large purchase. B) has a specific repayment schedule. C) can be used only once. D) contains a longer grace period.
d
All of the following are true of a home equity loan except it A) provides you a line of credit. B) is a good way to combine different kinds of debt. C) may be tax deductible. D) allows you to borrow up to 80% of the market value of your home.
d
Personal loans include which of the following? A) Car loans B) Credit card advance payments C) Home equity loans D) Both A and C
d
Purchasing a car is a big decision. Therefore you should not A) use the Internet to price shop. B) read Consumer Reports to find a good car value. C) ask a friend or relative to go with you to the car lot. D) rely on the dealer personnel as the best source of expert advice.
d
The cost of leasing a car versus purchasing one A) is more. B) is less. C) is about the same. D) varies depending on a multitude of factors.
d
The method of determining the monthly interest amount by adding the interest and loan principal together and dividing by the number of payments is the A) simple-interest method. B) annual percentage method. C) simple-interest declining balance method. D) add-on interest method.
d
The most favorable car financing is that of A) commercial banks. B) credit unions. C) car dealers. D) There is no one best deal every time; it pays to shop around.
d
Which is true regarding resale value of cars? A) You can't really determine the resale value very accurately before you buy a car. B) You are always better off to buy a higher priced car with a greater resale value. C) You are always better off to buy a lower priced car with a lower resale value. D) Resale values can be determined from the Internet and other sources and should be a consideration in buying a car
d
You could reduce the size of your monthly payments by A) agreeing to a higher interest rate. B) borrowing the same amount of money but for a shorter period of time. C) borrowing more money initially for the same period of time. D) lengthening the maturity.
d
Because interest is tax deductible and payments are deferred until you graduate, it is good advice to take out the maximum student loan for which you can qualify
false
A loan based on the difference between the appraised value of your house and the balance due on your mortgage is called a(n) ________ loan.
home equity
disclosure of information including a balance sheet and cash flow statement
loan application
When the borrower and the lender have agreed to the specific terms of the loan these will be included in the ________
loan contract
a contract that specifies the terms of the loan agreed to by the follower and the lender
loan contract
life or duration of a loan
maturity
If the lender has the right to take certain specified assets of the borrower in the event of a default on the loan, the loan is a(n)________ loan.
secured
________ is a method of computing interest based on the existing principal amount of the loan.
simple interest
interest rate multiplied by the principle
simple interest
A loan provided to finance the expenses of a person pursuing a college degree is called a(n) ________.
student loan
Advantages to leasing a car instead of buying one are that you need less of a down payment and that you do not need to worry about finding a buyer for your car when the lease is over.
true
Auto loan Internet sites are a good source to estimate the maximum amount you can borrow, based on financial information you provide.
true
Because the market value of homes may decline, lenders do not like to lend the full amount of the equity when extending a home equity loan.
true
Buying a car from a dealer with a set price (a no haggle dealer) is usually more stress-free and less time consuming.
true
Even though you don't use the proceeds to improve your home, the interest on a home equity loan is deductible from your federal income taxes.
true
Home equity is defined as the market value of the home less the debt owed on the home.
true
If the interest rates are the same, a loan using add-on interest will have higher payments and charges than a loan using simple interest.
true
It is important to buy a car that is not over your budget and to finance the car properly. The more money needed to cover the car payments, the less you can add to your savings or other investments.
true
The decision to purchase versus lease a car is highly dependent on the estimated market value of the car at the end of the lease period.
true
The proceeds from a home equity loan can be used for any purpose including a vacation, tuition payments, or health care expenses.
true
There are set limits on how much a student can borrow each year for student loans, but these limits usually increase each year as the student progresses.
true
a personal loan is different from a credit card in that it is normal used to finance one large purchase
true
collateral is defined as assets of the lender that back a secured loan in the even of a default
true
if a loan is consigned and the borrower defaults, the lender has the right to sue the cosigner or try to seize his assets just as if he were the borrower
true
in general, you will receive more favorable terms on a secured loan than on an unsecured loan
true
