FIN 381 Exam 2

A food package with 32 ounces costing $1.76, would have a unit cost of what amount?

$1.76 ÷ 32 = 5.5 cents an ounce

cooperative

a nonprofit organization owned and operated by its members for the purpose of saving money on the purchase of goods and services

rebate

a partial refund of the original price of the product

Coinsurance Clause

a policy provision that requires a homeowner to pay for part of the losses if the property is not insured for the specified percentage of the replacement value

Earnest Money

a portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer

revolving check credit

a prearranged loan from a bank for a specified amount; also called a bank line of credit

Credit bureaus

a reporting agency that assembles credit and other information about consumers

Arbitration

a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides

Chapter 13 bankruptcy

a voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court

warranty

a written guarantee from the manufacturer or distributor that states the conditions under which the product can be returned, replaced, or repaired

Assigned Risk Pool

consists of people who are unable to obtain automobile insurance due to poor driving or accident records and must obtain coverage at high rates through a state program that requires insurance companies to accept some of them.

incidental credit

credit arrangement that has no extra costs and no specific repayment plan

new car warranties

-Basic parts against defects -Power train coverage -Corrosion warranty

Steps if bill is wrong

1. call your creditor 2. notify creditor in writing 3. your account must be corrected, and you must be sent an explanation of any amount you still owe

Steps if someone has stolen your identity

1.contact fraud department of equifax, experian, transunion 2. contact the creditors for any accounts that have been tampered with or open fraudulently 3. file a police report

An item bought on credit with a $60 down payment, and monthly payments of $70 for 36 months, would have a total cost of what amount?

36 × $70 = $2,520 plus the $60 down payment for a total of $2,580

What is the total amount of a 30-year mortgage with monthly payments of $850?

360 payments (30 years × 12 months) are multiplied by $850 for a total of $306,000.

second mortgage

A cash advance based on the paid-up value of a home; also called a home equity loan.

deed

A document that transfers ownership of property from one party to another.

Truth in Lending Law

A federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount.

Fair Debt Collection Practices Act (FDCPA)

A federal law, enacted in 1978, that regulates debt collection activities.

adjustable-rate mortgage (ARM)

A home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; also called a flexible-rate mortgage or a variable-rate mortgage.

Bankruptcy

A legal procedure for dealing with debt when an individual or business cannot repay what they owe

rate cap

A limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage.

Reverse Mortgage

A loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies.

consumer credit counseling service (cccs)

A local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems.

rule of 78s

A mathematical formula to determine how much interest has been paid at any point in a loan term.

previous balance method

A method of computing finance charges that gives no credit for payments made during the billing period.

average daily balance method

A method of computing finance charges that uses a weighted average of the account balance throughout the current billing period.

add-on interest method

A method of computing interest in which interest is calculated on the full amount of the original principal

Calculating annual percentage rate (APR)

APR==2×Number of payment periods in one year×Dollar cost of creditLoan amount(Total number of payments to pay off the loan+1)2×n×IP(N+1) Example: P = Principal borrowed, $100 n = number of payments in one year, 1 I = Dollar cost of credit, $8 APR=2×1×$8$100(1+1)=$16$200=0.08, or 8 percent For 12 equal monthly payments, APR=2×12×$8$100(12+1)=$192$1,300=0.1476, or 14.76 percent

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Phishing

An attack that sends an email or displays a Web announcement that falsely claims to be from a legitimate enterprise in an attempt to trick the user into surrendering private information

appraisal

An estimate of the current value of the property.

condominium

An individually owned housing unit in a building with several such units

buy-down

An interest rate subsidy from a home builder or a real estate developer purchased by the buyer that reduces a home buyer's mortgage payments during the first few years of the loan.

impulse buying

An unplanned buying behavior resulting from a powerful urge to buy something immediately

Current approximate value of Joshua's home is about $180,000. He still has a $100,000 balance on his mortgage. His bank has agreed to let him borrow 80 percent of the value of his home. What is the maximum home equity line of credit available to Josh?

Approximate market value of Joshua's house $ 180,000 Multiply by .80 144,000 Approximate loan value 144,000 Subtract balance due on mortgage 100,000 Approximate credit limit available $ 44,000

mortgage

a long-term loan on a specific piece of property such as a home or other real estate

Audra has a monthly net income of $2,100. She has a house payment of $900 per month, a car loan with payments of $500 per month, a Visa card with payments of $100 per month, and a credit card with a local department store with payments of $200 per month. What is Audra's debt payment-to-income ratio?

Audra's net monthly income = $2,100 Audra's monthly expenses: House payment 900 Car loan 500 Visa card 100 Store card 200 Total expenses 1,700 Debt payments-to-income=$1,700−$900$2,100=.38, or 38%

Equal Credit Opportunity Act (ECOA)

Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors.

open-end credit

Cards issued by department stores, bank cards, travel and entertainment cars, american express, overdraft protection

Five C's of credit

Character, Capacity, Capital, Collateral, Conditions

Bodily Injury Liability

Coverage for the risk of financial loss due to legal expenses, medical costs, lost wages, and other expenses associated with injuries caused by an automobile accident for which the insured was responsible.

In choosing a home equity loan:

Find out if your lending institution protects you against rising interest rates. Compare the size of your lender's fee with those of other institutions. Find out if your lender charges an inactivity fee. Make sure high annual fees and other costs do not outweigh the tax advantage of a home equity loan, especially if you are borrowing only a small amount. Be careful of interest-only payments on home equity loans. Find out whether your lender has the right to change the terms and conditions of your loan or to terminate your loan. Make sure that all of the interest you hope to finally deduct on your home equity loan is in fact deductible. Carefully evaluate your reasons for using the equity in your home for loans. Know the full costs and risks of home equity loans before you make a commitment to a lending institution.

Hannah has determined that her net worth is $60,000. She has also determined that the face value of her mortgage is $160,000. She has determined that the face value of the rest of her debt is $30,000. What is Hannah's debt-to-equity ratio?

Hannah's net worth = $60,000 Face value of her mortgage $160,000 Remainder of her debt 30,000 Hannah's debt-to-equity ratio 30,000$ 60,000=.5

class action suit

a legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice

Calculating simple interest

Interest (in dollars) = Principal borrowed × Interest rate × Length of loan in years I = P × r × T Example: From above: P = $100; r = 0.08; T = 1 I = $100 × 0.08 × 1 = $8

lease

a legal document that defines the conditions of the rental agreement between the tenant and the landlord

payment cap

a limit on the payment increases for an adjustable-rate mortgage

closed-end credit

Mortgage loans, automobile loans, installment loans

Chapter 7 Bankruptcy

One type of personal (or straight) bankruptcy in which many debts are forgiven.

declining balance method

a method of computing interest when more than one payment is made on a simple interest loan

Fair Credit Reporting Act

Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected.

Truth in Lending Act

Requires creditors to provide consumers with the terms and cost of credit

open-end credit

a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment

capacity

The financial ability to repay a loan with present income

Calculating compound interest

Total future value of a loan = Principal (1 + Rate of interest)Time in years F = P (1 + r)T Example: From above: P = $100; r = 0.08; T = 1 F = $100(1 + 0.08)1 = $100(1.08) = $108

What would be the monthly payment for a $180,000, 20-year mortgage at 6 percent?

Using the Exhibit 9-9 table, multiply 180 times $7.16 to determine the monthly payment of $1,288.80.

home equity loan

a loan based on the current market value of a home less the amount still owed on the mortgage

manufactured home

a housing unit that is fully or partially assembled in a factory before being moved to the living site

smart card

a card that contains a computer chip that stores electronic money, can store medical history, insurance info, drivers license, frequent flier miles

driver classification

a category based on the driver's age, sex, marital status, driving record, and driving habits; used to determine automobile insurance rates

Actual Cash Value (ACV)

a claim settlement method in which the insured receives payment based on the current replacement cost of a damaged or lost item, less depreciation

small claims court

a court that settles legal differences involving amounts below a set limit and employs a process in which the litigants usually do not use a lawyer

installment cash credit

a direct loan of money for personal purposes, home improvements, or vacation expenses, no down payment and make payments in specified amount over specified set period

hazard

a factor that increases the likelihood of loss through some peril

cooperative housing

a form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units

endorsement

an addition of coverage to a standard insurance policy

service contract

an agreement between a business and a consumer to cover the repair costs of a product

credit insurance

any type of insurance that ensures repayment of a loan in the event the borrower is unable to repay it

Installment sales credit

direct loan of money for personal purpose, down payment and contract to repay balance, plus interest and service charges in equal installments over a specified period. Used to purchase furniture or home appliances

closing costs

fees and charges paid when a real estate transaction is completed; also called settlement costs

open dating

information about freshness or shelf life found on the package of a perishable product

title insurance

insurance that, during the mortgage term, protects the owner or the lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy

simple interest

interest computed only on the principal

Collatoral

is an asset that you pledge to a financial institution to obtain a loan

Lump-sum credit

loan must be repaid in total on a specified day, usually 30-90 days

escrow account

money, usually deposited with the lending financial institution, for the payment of property taxes and homeowner's insurance

legal aid society

one of a network of publicly supported community law offices that provide legal assistance to consumers who cannot afford their own attorney

closed-end credit

one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts

points

prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1 percent of the loan amount

conditions

refer to general economic conditions that can affect your ability to repay a loan

Capital

refers to your assets or net worth

zoning laws

restrictions on how the property in an area can be used

Fair Credit Billing Act (FCBA)

sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments

financial responsibility law

state legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident

adjusted balance method

the assessment of finance charges after payments made during the billing period have been subtracted

mediation

the attempt by an impartial third party to resolve a difference between two parties through discussion and negotiation

Character

the borrower's attitude toward credit obligations

Annual Percentage Rate (APR)

the percentage cost of credit on a yearly basis

Refinancing

the process of obtaining a new mortgage on a home to get a lower interest rate

Amortization

the reduction of a loan balance through payments made over a period of time

Deductible

the set amount that the policyholder must pay per loss on an insurance policy

finance charge

the total dollar amount you pay to use credit

unit pricing

the use of a standard unit of measurement to compare the prices of packages that are different sizes

Consumer Credit

the use of credit for personal needs (except a home mortgage)

Debt to Equity Ratio

total liabilities/net worth

convience user

users who pay credit card in full each month