chapter 9 personal finance
because interest is usually 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
buying a new car online is just about as efficient as buying an airline ticket or a book
false
collateral is defined as assets of the lender that back a secured loan in the event of default
false
even an unsecured personal loan should be backed by collateral
false
in determining the amount of your loan, you should ask for 20% more than you need in order to give yourself financial flexibility in the future
false
in securing personal loans from family members or friends, the loan agreement should be verbal or just consist of a "gentlemens understanding"
false
it is usually better to lease a vehicle than buy one, since you are not responsible for the repairs r maintenance on a leased car
false
leasing a car is a good option if you drive many miles a year
false
on an amortization schedule, more interest and less principle is paid each month as the loan matures
false
shopping for automobile insurance should begin immediately after you close the deal on the car
false
the monthly payment for a loan is dependent only on the size of the loan and the interest rate
false
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 a personal cash flow statement
false
which of the following is the most common source of financing for personal loans
financial institutions
collateral
gives the lender additional resource if the payments are not made
making extra payments on a loan does all of the following except
gives you extra income for living expenses
which of the following is not an interest rate calculation method discussed in the text
sum of the digits interest
the size of the monthly payment on a loan is dependent on all of the following except
the borrowers age
in which of the following scenarios would you favor leasing over purchasing a car
the car in question is one whose value depreciates rapidly
longer maturities for loans result in lower monthly payments and therefore make it easier to cover payments each month
true
the decision to purchases versus lease a car is highly dependent on the estimated market value of the car at the end of the lease period
true
the most common source of financing for a personal loan is from a financial institution
true
there are limits on how much a student can borrow through federal student loans, so many students also have to obtain private loans from financial institutions
true
when borrowing money from a family member or a friend, the loan agreement should be in writing and signed by all parties to avoid any possible misinterpretations
true
for which of the following items would a personal loan be a better option than a credit card for a college student?
tuition and dorm fees
the cost of leasing a car versus purchasing one
varies depending on a multitude of factors
considerations in selecting a car should include all of the following except
what kinds of car your really want, regardless of what you need
when deciding whether to trade in a car or sell it privately, which of the following is not a consideration
year, make and model of the car
personal loans include all of the following except
mortgage loans
you obtain a loan of $3000 based on simple interest with an annual interest rate of 12%, or 1% a month. if the first payment is $300, how much is the principal portion of the payment
$270 300- (3000*0.01)
you obtain a loan of $3000 to be repaid over one year. assume you are charged 12% interest based on the add-on method. your monthly payments would be
$280 3000*.12= 360 3000+360= 3360 3360/12= 280
you obtain a loan of $3000 based on simple interest with an annual rate of 12%. at the end of the first month, the interest owed on $3000 is
$30 (3000*.12) / 12
which of the following are important factors in determining the monthly lease price of a new car
- purchase price or capitalized value -"money factor" or interest rate embedded in the lease -residual value of the car included in the lease contract
you could reduce the interest rate you are paying on loans by
-refinancing to a secured loan -paying off credit card debt with a home equity loan -refinancing to a shorter term loan
list 4 components of a loan contract
1. amount of loan 2. interest rate 3. loan repayment schedule 4. length of loan 5. collateral
loan contract
a contract that specifies the terms of the loan agreed to by the borrower and the lender
which of the following would probably not be required when applying for a personal loan
a personal resume
which of the following methods of calculating interest is the most expensive
add-on interest
the method of determining the monthly interest amount by adding the interest and loan principle together and dividing by the number of payments is the
add-on interest method
what should you not consider when selecting a vehicle
all parts are american made
the APR measures the finance expenses (including interest and all other expenses) on a loan on a
annualized basis
automobile insurance rates are likely to differ for all of the following reasons except some cars
are moe popular than others
collateral
assets of a borrower that back a secured loan
if you always drive cars many miles and keep them for 10 years, it would probably be best to
buy a new car
personal loans include which of the following
car loans home equity loans
which of the following is NOT usually used as collateral for a loan
clothing
disadvantages of leasing a vehicle include all of the following except
cost of finding a buyer for the car at the termination of the lease
having a longer term loan
costs you more interest and therefore increases the cost of your loan
which of the following is not included in the loan contract
credit score
in making the purchase versus leasing decision, it is important to remember that
dealers may impose an additional mileage cost
loan application
disclosure of information including a balance sheet and cash flow statement
what is the correct chronological order of the items listed below
good credit history, loan application, loan contract, repayment schedule
a personal loan is different from a credit card in all of the following except it
has a longer grace period
the more expensive the car, the _______ the payments, and the ____ you can put toward other investments
higher, less
which of the following statements about student loans is not true
if you dont complete your education, you will not have to pay back the student loan
over the life of a loan, the payment to principal _______ and the portion to interest expense _______
increases, decreases
all of the following provide personal loans except
insurance companies
which of the following is a true statement about student loans
interest payments on some loans are deferred until the students graduate and enter the workforce
simple interest
interest rate multiplied by the principal
regarding automobile insurance,
it is better to compare costs before you commit to buying a particular car
you could reduce the size of your monthly payments by
lengthening the maturity of the loan
maturity
life or duration of a lona
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 credit card purchases to what you can afford to pay off when your credit card bill arrives each month
limited debt
the document that specifies the term of the loan as agreed to by the borrower and lender is called the
loan contract
when the borrower and the lender have agreed to the specific terms of the loan these ill be included in the
loan contract
the loan contract identifies all of the following except
loan officer
unsecured loan
loan that is not backed by collateral
all of the following are true to peer-to-peer lending, except
loans are available only for amounts less than $1,000
the ____ the maturity of a loan, the _______ the payments
longer, smaller shorter, larger
if you are considering trading in a used car when you purchase your new one, it is best to
make the trade in deal a separate transaction from the new car deal
advantages of leasing a vehicle include all of the following except
no maintenance cost
which of the following items must you provide when applying for a loan in order to prove you have collateral to back your loan
personal balance sheet
common practices used by dishonest lenders include all of the following except the lender
prohibiting the borrower from purchasing insurance or other financial services as a condition of the loan
APR
rate that measures the finance expenses
if you double the principal repayment called for on your car loan each month without doubling the interest payment, you will
reduce the term of the loan by half
purchasing a car is a big decision. therefore you should not
rely on the dealer personnel as the best source of expert advice
in the past you have purchased cars that you have driven for 10 years or more. the mileage on these vehicles usually exceeded 100,000 and therefore you would just give them to a younger family member. based on this history, your primary financial consideration in selecting a car will be
repair expense
which is true regarding resale value of cars
resale values can be determined from the Internet and other sources and should be a consideration in buying a car
when negotiating the price of any car, which of the following statements is true
sales people are trained to act as if they are giving the car away
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 _____ loan
secured
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
secured
which kind of loan generally charges the lowest interest rate
secured loan
personal loans from family members or friends
should have a loan agreement in writing to avoid problems later on
______ is a method of computing interest based on the existing principal amount of the loan
simple interest
the personal loan process with a financial institution requires all of the following except
sitting through an interview
the truth-in-lending act requires which of the following
specifying loan rate standardization
when assessing the condition of a used car, you should carefully consider all of the following except
the insurance premium the previous owner paid
all of the following are true regarding a cosigner on an account except
the lender may not seize the assets of the cosigner
in a loan repayment schedule, the term amortized refers to
the repayment of the principal and interest through a series of equal payments
the most favorable car financing is that of
there is no one best deal every time; it pays to shop around
a personal loan is different from a credit card in that it is normally used to finance one large purchase
true
advantages of 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 interest sites are a good source to estimate the maximum amount you can borrow, based on financial information you provide
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
if a loan is cosigned and the borrower defaults, the lender has the right to sue the cosigner or try to seize the cosigners assets just as if that person were the borrower
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
in general, you will receive more favorable terms on a secured loan than on an unsecured loan
true
it is important to buy a car that is not over your budget and to finance the car properly. the more money need to cover the car payments, the less you can add to your savings or other investments
true
which of the following is a key benefit of leasing
you are able to drive a more expensive car for the same n=monthly payment versus buying
regarding the amount of money borrowed on a loan, all of the following are true except
you should borrow slightly more than you need to cover future inflation
the advantage to financing a car for a long period of time (of up to 7 years) is
your monthly payment will be lower