personal finance exam 1 terms only

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.

debit card

Electronically subtracts the amount of a purchase from the buyer's account at the moment the purchase is made.

simple interest

Interest computed on principal only and without compounding.

chapter 7 bankruptcy

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

closed end credit

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

credit card accountability (responsibility and disclosure act)

Places new restrictions on credit card lending and eliminates certain fees.

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.

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.

adjusted balance method

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

capital

The borrower's assets or net worth.

character

The borrower's attitude toward his or her credit obligations.

capacity

The borrower's financial ability to meet credit obligations

conditions

The general economic conditions that can affect a borrower's ability to repay a loan.

annual percentage rate

The percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit.

finance charge

The total dollar amount paid to use credit.

rate of return

The total income you receive on an investment over a specific period of time divided by the original amount invested.

consumer credit

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

annual percentage yield

the percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate of frequency compounding for a 365 day period

automatic teller machine (ATM)

A computer terminal used to conduct banking transactions; also called a cash machine

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

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

mutual savings bank

A financial institution that is owned by depositors and specializes in savings accounts and mortgage loans.

commercial bank

A financial institution that offers a full range of financial services to individuals, businesses, and government agencies.

savings and loan association (S&L)

A financial institution that traditionally specialized in savings accounts and mortgage loans.

trust

A legal arrangement through which one's assets are held by a trustee.

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.

Home Equity Loan

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

Consumer Credit Counseling Service (CCCS)

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

credit insurance

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.

declining balance method

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

interest

A periodic charge for the use of credit.

revolving check credit

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

compounding

A process that calculates interest based on previously earned interest.

share account

A regular savings account at a credit union.

credit bureau

A reporting agency that assembles credit and other information about consumers.

money market account

A savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates.

certificate of deposit (CD)

A savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate.

money market fund

A savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments.

line of credit

A short-term loan that is approved before the money is actually needed.

credit union

A user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members.

collateral

A valuable asset that is pledged to ensure loan payments.

chapter 13 bankruptcy

A voluntary plan that a debtor with regular income develops and proposes to a bank- ruptcy court.

consumer credit reporting reform act

Act that places the burden of proof for accurate credit information on the credit reporting agency.

asset management account

An all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account.

credit

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

overdraft protection

An automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account.

share draft account

An interest-bearing checking account at a credit union.