Chapter 6 business

What is Unsecured debt?

-- debt is not tied to a specific asset; there is no collateral that can be repossessed if borrower defaults

Name at least 2 things all 4 types of credit have in common.

2 things they all have in common are you get money for stuff and you then you pay for it in the future

What happens if, for whatever reason, you miss a payment on your car loan?

The car will be repossessed and the credit score will be destroyed

hen borrowing money through an auto loan, it is better to have a __________ (higher/lower) interest rate. The higher your credit score is, the ________________ (higher/lower) your APR, or interest rate.

lower, lower

What is a term loan?

repaid in regular payments over a set period of time.

What is dealer financing?

The dealer typically sells the contract to a bank, finance company or credit union that services the account and collects your payments.

You [should/should not] tell the dealer the maximum you can pay per month.

should not

What is Variable-rate?

-- interest rate can change during the duration of the loan based on the prime rate or an index rate

What is a Fixed-rate?

-- interest rate remains constant during the duration of the loan

List 3 ways you could DECREASE the total amount of money you pay for your mortgage.

-He can make extra payments so you pay less interest. - he can not miss payments -you can pay more monthly.

What is a prepaid debit card?

A "Gift Card" for anywhere. Typically VISA

What is a debit card?

A card that has your money that can be accessed through ATM or straight from the bank when making a purchase.

What is a secured loan?

A secured loan, is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan

When choosing a credit card why is looking at the grace period important?

About 25 days traditionally. Many cards have cut down the grace period to 20 days which makes them less you have to pay. The time to pay without having to pay interest. Look for where You have the longest grace period.

What does it mean to Have an adult become a Cosigner/Guarantor?

Cosigner or guarantor would pay payments and oversee and adult because you may not be approved. 18 year is the requirement.Both people are responsible and it effects both peoples credit score. Make sure you make payments on time so cosigner does not have to.

What are the different fees that you know that credit card companies charge borrowers?

Credit card companies charge interest, annual fees, late payment fees.

What is direct lending?

Direct lending is when you might borrow money directly from a bank, finance company, or credit union.

What are some cons of pre paid cards?

If you lose it, you basically lost cash. Does not build credit.

Why do people sometimes use credit to pay for items instead of just using cash?

Some people use credit to pay for items instead of just using cash so they do not have to carry money around and so it is easier.

When choosing a credit card why is looking at the annual fee important?

Stay away from cards with this if you are just starting to have credit. Try to find one without an annual fee. There are many cards without it.

Sometimes, lenders allow or require a downpayment before they extend you the loan. What would be the advantage to the lender? What would be the advantage to the borrower?

The advantage to the lender would be that they have that they have a chunk of money before they have the rest of the loan and the advantage to the borrower would be that a portion of the the loan is already paid off.

When choosing a credit card why is looking at the APR important?

The average is 15.12%. Good is 12-15%. Poor credit is around 20-25%. This happens if you do not pay it off within the grace period.

Many homeowners had ARMs during this time. Explain what would have happened to the cost of their mortgages during this time of mortgages getting higher?

The cost of their mortgage interest would have increased since they do not have a fixed rate that stays the same.

What would likely happen to the rate of foreclosures as a result of the change in rates? Explain why.

The rate of foreclosures would have increased because people would need to pay more money that they do not necessarily have which would cause them to not be able to pay for it.

Which types of credit involve repaying a fixed amount for a fixed number of months?

The types of credit are loans, mortgages, and overdraft.

When choosing a credit card why is looking at the penalty fees and rates important?

There are late fees. You need to know what the fees are so you know what contract you are going to sign. What is the interest rate it will be bumped up to if you do not make the payment

How are credit cards similar or different than debit cards?

They are similar because you buy things with them and you can reach a max amount but they are different because credit cards are not your real money. They are loans and debit cards are your money.

What does it mean to become and authorized user?

You are being added as a user on another person's (adults) account. The age varies but usually is under 18. Only way you can get a card under 18. You are not legally responsible for payments. Can help you build credit.

What does it mean to Become a co-owner on a Joint Account?

You have to be 18 or older. Typically between spouses. Co-own the account with someone else making you equally responsible. Effects both owners credit.

Which types of credit involve repaying different amounts each month, depending on your activity?

credit cards

What is the Schumer Box?

shows how to read a statement

The larger your down payment amount, the ____________ (larger/smaller) the loan amount, and ______________ (larger/smaller) your monthly car payments.

smaller, smaller

What is Revolving credit ?

-- an open line of credit that can be used for any purchases as long as you're under the credit limit. Payment amounts vary each pay period based on the size of the debt.

What is Secured debt?

-- debt is tied to a specific asset that can be used as collateral and repossessed if borrower doesn't make payments

What is an installment loan?

-- used to finance a specific purchase for a specific amount of time. Regular payments are made to pay the interest and the principal.

How is an amortized loan different from a simple interest rate loan?

An amortized loan is amortizing loan is a loan where the principal of the loan is paid down over the life of the loan. A simple interest rate loan is when interest is only calculated on the outstanding principal balance. Simple interest does not compound and increase the loan balance. The amount of interest to be paid for each monthly payment cannot increase.

What are some cons of credit cards?

Can cause you to overspend. Risk of ID theft and high interest rate.

What are some pros of prepaid cards?

Can come in handy. Cannot be accessed if stolen.

What is a credit card?

Card used to borrow money from the bank but will be interest hit if you do not pay it off in time.

Explain why Joe's home actually costs $360,000.

It actually costs this much because of the interest he pays.

When applying for credit, is it preferable to receive a low interest rate or a high interest rate?

It is preferable to receive a low interest rate so you do not have to pay high amounts.

What are some cons of debit cards?

Limited to your money only. Overdraft Fees

Why do most people need a mortgage to buy a home?

Most people need a mortgage because they do not have enough cash to pay for it outright.

What does it mean to get a secured card?

Must be 18. Help build credit so you can get a traditional card. Make a deposit when open the account and get back when you close the account. You are responsible for payments Avoid missing payments. Is used like a regular card.

What are some pros of debit card?

No interest rates. FDIC protected.

What are some pros of credit cards?

Rewards programs. Build credit.

What is principal?

The principal of a loan is the amount borrowed. Interest is calculated on the principal.

How do you avoid paying these fees?

You avoid paying these feels by paying all your bills on time

If your car loan suddenly becomes too expensive, what is one thing you SHOULD do and one thing you SHOULD NOT do?

You should keep making monthly payments and call the lender to explain the situation so your car does not get repossessed. You should not contact any company that claims they can lower your monthly payment or keep your car from being repossessed because you could lose more money and your car.

What is a cosigner and what considerations should they make before co-signing a loan?

a person who agrees to pay a borrower's debt if he or she defaults on the loan. they should consider if they trust the person that they are signing with.

Give three reasons why a cash advance is a costly way of using your credit card.

cash advance fees, ATM fees, higher interest, no grace period, payment allocation rules

List two examples of items that could be used as collateral for a secured loan.

equity in your home or funds in a savings account

What is a danger of taking a variable rate loan?

higher payments, negative amortization, prepayment penalties, loan default

The shorter your term length, the ______ (higher/lower) your monthly payments, and the _______ (higher/lower) the total interest you will pay.

higher, lower

What factors determine the interest rate that will be charged for money borrowed when using credit?

how long it will be paid over, how much it originally is, how your credit score is

At the start of an amortized loan, the bulk of your monthly payment goes towards the _________. On the other hand, as you get closer to the end of the loan term, the bulk of your monthly payment goes towards the _______ .

interest, final cost

What is an unsecured loan?

is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral. ... Borrowers must generally have high credit ratings to be approved for certain unsecured loans.

If you need money, what are some alternatives to taking a cash advance on your credit card?

loan from friends or family, 401k plan, Roth IRA, collateral loan, salary advance from employer, peer to peer loan, payday or title loan,

What is interest?

money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

You should shop around for a loan pre approval from a direct lender before going to the dealer because _______________________

you will have the leverage and it is in your control __________________