Chapter 7: Choosing a source of credit
The three types of credit insurance are:
-credit accident and health -credit life -credit property
A reason why people tend to choose long-term financing is:
they want to make smaller monthly payments.
True or false: Family loans are simple arrangements and can benefit both parties and no documentation is recommended.
False
True or false: Most credit card companies do not charge a fee when a cash advance is made.
False
What is the best strategy if you can't make a payment on a debt?
Notify the creditor as soon as possible in an attempt to work out a modified payment plan.
Which of the following are ways to lower lender risk and therefore lower the cost of borrowing?
Secure a loan by property or another asset. Choose variable interest rate. Make a larger down payment. Only create short-term payments (lower rate and higher payments).
If you have funds available on your credit card, you can obtain a cash advance from _____.
a bank or credit union an ATM
The Fair Debt Collection Practices Act ______ to creditors that collect debts themselves.
does not apply
CCCS counseling is usually _____.
free
Which of the following are signs of possible debt problems?
getting a credit card revoked using up savings having little in savings borrowing money to pay old debts
The key pieces of information that credit card issuers must provide are ______.
grace period variable rate information APRs annual fees
The two main activities of the CCCS are:
helping families with debt problems by helping them manage debts. teaching families how to avoid heavy debt burdens in the future.
Lenders can reduce their risk by which of the following?
large down payment
The rule of 78s formula favors ____.
lenders
Credit offered by car dealers is generally ___ expensive than most other car loans.
less
In Chapter 7 bankruptcy, a debtor is required to draw up a ______ listing his or her assets and liabilities.
petition
The major provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009:
set a consistent due date for each month limits the issuer's ability to increase the interest rate in the first year state that a teaser rate must be good for at least six months
If you are denied credit by a bank or credit union, you should question:
your ability to afford the higher rate charged by a loan company.
Shopping for credit can easily be done by:
doing an Internet search.
A married couple that does not talk about money could be:
having debt problems.
Paying the _______ makes your credit card purchases much more expensive, especially at high interest rates.
minimum monthly payment
Family members may only charge interest they would have earned on the money if they had deposited it in a ______ account.
passbook
The person who distributes the money to creditors is the
trustee
One of the intangible costs of bankruptcy is the difficulty obtaining _____ in the future.
Blank 1: credit, loans, or loan
If you cannot make a payment on a debt when due, contact the _____ at once to work out a modified payment plan. This is a one-word answer.
Blank 1: creditor, lender, bank, or financier
In a straight bankruptcy, many but not all _____ are forgiven.
Blank 1: debts, liabilities, debt, obligations, or obligation
The Truth in Lending law of 1969 requires lenders to state the cost of borrowing as a specific _____ amount so that consumers know exactly what the credit charges are. This is a one-word answer.
Blank 1: dollar, currency, monetary, cash, or $
Payday loans are (inexpensive or expensive) _____ although readily available via check cashers, finance companies, and other sources.
Blank 1: expensive
Cash advances require that you pay a transaction _____
Blank 1: fee or charge
Cash advances on credit cards usually accrue _____ from the moment you accept the cash.
Blank 1: interest
Looking for credit, aided by Internet searches, is just as important as comparison _____ for large purchases such as automobile, furniture, or major appliances.
Blank 1: shopping, buying, or purchasing
Another very expensive way to borrow is a(n) _____ refund loan, which is possibly more expensive than a cash advance on a credit card. This is a one word answer.
Blank 1: tax
Some credit card holders make the minimum payment to remain in good standing without making progress on reducing the outstanding balance. This is referred to as the minimum monthly payment _____
Blank 1: trap
True or false: The purpose of the Truth in Lending law of 1969 was to give consumers the information needed to compare credit costs on various loans.
True
True or false: The rule of 78s is a mathematical formula to determine how much interest has been paid at any point in a loan.
True
True or false: You should avoid credit when you don't need the purchase and when you can afford to pay cash to acquire the item.
True
The most commonly purchased type of credit insurance is:
credit life insurance.
Which of the following loans are offered by credit unions to consumers?
Credit card loans Installment loans Share draft loans
Which of the following types of loans are offered by life insurance companies?
cash value of whole life
Which of the following obligations are not discharged in a Chapter 7 bankruptcy?
certain taxes child support fines alimony
Passbook loans are offered by
commercial banks
Consumer finance companies do not offer:
credit card loans
Which of the following are advantages of borrowing from a credit union?
patient with borrowers personalized service
Installment loans are a cheaper alternative to credit cards because:
they are cheaper over many months or years when an extended payment period is needed. their interest rates are often lower than credit card rates.
One reason some people use payday loans is that:
they are convenient.
A simple interest declining balance loan has the following terms: 8% annual interest rate, $2,000 loan, two 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 car is repossessed by a bank. The borrower owed $4,000 on the car. At an auction, the car is sold for $3,000 and the bank incurred a $150 towing charge. How much, if anything, will the borrower owe after the sale at auction?
$1,150, which is the unpaid loan balance and the towing charge
On a discount loan of $2,000 with $75 interest, how much will you receive for loan proceeds?
$1,925
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
A $1,000 loan that uses add-on interest has the following terms: 8%, one year, two payments: one in 6 months and one in 12 months. What is the amount of each of these payments?
$540
The new Credit CARD Act requires creditors to include a warning on the monthly statement about making only the minimum _____
Blank 1: payment
There are several reasons that you should borrow from a credit union, including their patience in dealing with borrowers who have good reasons for missed payments, and they provide _____ service.
Blank 1: personal, personalized, quality, great, good, customer, caring, or customized
Simple interest (I) is calculated as follows: _____ X Rate of Interest X Time. This is a one word or one letter answer.
Blank 1: principal or P
Which of the following is true about a repossession and the borrower's responsibilities after an auction sale of the vehicle by the bank?
The borrower owes the difference between the sale price and the unpaid debt plus legal, towing, and storage costs.
One possible reason for indebtedness among young people is the desire to use credit to live at a level that may have taken their parents years to achieve.
True
True or false: Most automobile financing agreements allow the lender to repossess your vehicle when you are in default on your payments.
True
True or false: The Fair Debt Collection Practices Act prohibits certain practices by agencies that collect debts for creditors.
True
Which of the following best explains the flaw in the strategy of borrowing from a finance company?
When you are denied credit from traditional sources, you probably have less ability to afford the higher rate a finance company charges.
Which of the following loans are available to consumers through commercial banks?
second mortgages passbook loans credit cards
Which of the following types of loans are offered by consumer finance companies?
second mortgages personal installment loans
Credit offered by car dealers, such as financing through ______, may be less expensive than banks, but the downside is that the car dealer may be less willing to discount the price.
the General Motors Acceptance Corporation or Ford Motor Credit Corporation
A $3,000 loan that uses add-on interest has the following terms: 6%, one year, two payments: one in 6 months and one in 12 months. What is the amount of each of these payments?
$1,590
A Chapter 13 bankruptcy can be in effect for as long as ___ years.
5
True or false: The creditor in a Chapter 13 bankruptcy proposes a plan to pay off debts from future earnings over a period of time.
False
You agree to pay a bank discount rate of 6% on a $1,000 loan. How much will you receive from the bank when you sign the papers and receive the funds?
$940
A Chapter 13 bankruptcy plan can be in effect for as many as _____ years.
Blank 1: 5 or five
The two major categories or types of credit are ______ -end and closed-end credit.
Blank 1: Open or opened
The two major categories or types of credit are -end and open-end credit.
Blank 1: closed or close
An example of a travel and entertainment card is _____.
Diners Club
True or false: Only about one million Americans belong to credit unions.
False
In a Chapter 13 bankruptcy, the debtor normally keeps _____ of the property.
all or most
The pros and cons of T&E credit cards, such as American Express, include:
annual fees are typically high. full payment is due each month. no finance charge is incurred as full payment of the balance owed is due each month.
Which of the following is generally considered to be expensive sources of loans?
appliance companies bank credit cards department stores finance companies
Why are investors willing to pay a higher rate on loans when increased inflation is expected?
because they expect inflation to enable them to repay the loan with cheaper dollars
Tax refund loans are a(n) _____ way to borrow money in case of a cash shortfall.
expensive
Which of the following items of income and value are protected under a Chapter 7 bankruptcy?
household appliances trade tools equity in cars SS payments and unemployment compensation equity in home
Credit card issuers must provide certain information to consumers, including:
how to avoid paying interest. APR for purchases, balance transfers, and cash advances. minimum interest charge, setup and maintenance fees. penalty APR and when it applies.
It is said that the least expensive way to borrow is when you borrow on the value of a financial asset. Which of the following loans would meet that test?
life insurance cash surrender value loan certificate of deposit loan
A simple interest declining balance loan has the following terms: 8% annual interest rate, $3,000 loan, two 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
Although credit counseling is often free, some agencies will charge a set-up fee. Which of the following is a likely set-up fee for credit counseling?
$10
The interest rate on cash _____ is often higher than the rate on purchases.
Blank 1: advances, advance, loan, loans, or borrowing
Before you borrow money you should ask yourself if you need a loan, if you can ______ the loan, and if you can qualify for a loan.
Blank 1: afford, repay, or pay
The first thing a debtor must do in a Chapter 7 bankruptcy is to draw up a petition listing _____ and liabilities or debts for submission to the court.
Blank 1: assets
Cash advances are obtained through your _____ card at a bank or through an ATM machine. This is a one-word answer and found in the discussion of cash advances.
Blank 1: credit
Most credit cards carry a special _____ , based on the percentage of the amount borrowed, that is applied when a cash advance is taken out. This is a one-word answer.
Blank 1: fee, charge, or rate
Credit cards can be a cheaper alternative to an installment loan if the need is short term (less than a month). This is because of the _____ period that is often allowed by credit card companies.
Blank 1: grace or float
The interest rate on cash advances is often _____ than the rate on purchases. This is a one-word answer.
Blank 1: higher, greater, bigger, larger, or more
Each 1% increase in the _____ rate means a decrease of approximately 1% in the quantity of goods and services you can purchase with a given amount of money.
Blank 1: inflation
Long-term financing is more costly than short-term financing because of higher _____ costs.
Blank 1: interest, finance, or borrowing
Two situations when you should avoid credit are: when you don't ______ or really want the purchase, and when you could pay cash but choose to finance the needed item. (Enter one word per blank.)
Blank 1: need or require
A credit counseling organization usually provides credit management classes and helps you devise a credit management _____. (Enter only one word per blank.)
Blank 1: plan, arrangement, scheme, strategy, or system
Once you decide that you need to use credit to meet your needs, and assuming that you can afford the payments, you must _____ for the credit.
Blank 1: qualify, apply, or shop
Most automobile financing agreements permit your creditor to _____ your car anytime you are in default on your payments.
Blank 1: repossess, repo, take, reposess, or reposses
Sharon has been taking out student loans to finance her college education. She has amassed a great deal of debt, but plans to declare Chapter 7 bankruptcy to have the debt forgiven. Will her strategy work?
No, student loans are not forgiven in Chapter 7 bankruptcy.
True or false: Credit cards are convenient, but not always better, to use than installment debt because of the latter's application process and procedures; but that ease of use can lead to overuse.
True
True or false: In most cases, it is less expensive to borrow money using your certificate of deposit as collateral for a loan than if you use your used car.
True
True or false: Keeping up with the Joneses can contribute to a debt burden.
True
True or false: Loans from finance companies and appliance stores tend to be the highest cost loans.
True