Homework Ch. 9-7e
You might use a deferment on a student loan if:
you have a temporary financial hardship such as job loss.
You should make sure the price is no higher than that quoted by:
"no-haggle" dealerships.
Could lenders with the same interest rate report different APRs?
Yes, depending on the other fees charged.
The amount of the loan will be determined by the:
lender, based on what he believes you can repay in the future.
As more principal is repaid, the amount of interest is: (
reduced, and a larger portion of the payment is used to repay the principal.
Disadvantages of leasing a car
-Dealers may charge fees beyond the monthly lease payments for the additional insurance. -Dealers may charge fees beyond the monthly lease payments for excess mileage charges. -Dealers may charge fees beyond the monthly lease payments for ending the lease prematurely.
List some things that should raise red flags with regard to online lending.
-Some scam artists may ask for an upfront fee until your loan is processed and you are approved. -Avoid a lender offering a guaranteed loan before reviewing your application.
What information is contained in a loan repayment schedule?
-The dollars of the payment applied to the principal -The outstanding principal balance after the payment -The payment amount each month
List the factors you need to consider when selecting a car to buy
-The financial criteria that need to be considered are: price, insurance, resale value, repair expenses, and financing rate, as rates may vary among dealers. -When buying a car, first determine the type of car you need. -You need to assess the condition of the car. -Decide on the price by staying within your budget. In general, if you finance a car purchase, you should estimate the dollar amount of the monthly payment. You can then determine whether you can afford to make the required payments to finance the car.
information included in a loan contract is:
-interest rate on loan -maturity -amount of loan
What is the difference between subsidized and unsubsidized student loans?
An important difference between the subsidized and unsubsidized loans is that the government pays the interest on the subsidized loans while you are in school. For unsubsidized loans, interest is charged while you are in school and is added to your loan balance.
The two ways financial institutions might define equity to set credit limits are:
equity invested and market value.
When is it advisable to use a debt consolidation loan?
Debt consolidation can simplify your financial situation and record keeping because you only have to pay one bill each month instead of several. Sometimes you can save money because the interest rate may be lower than the rates you were paying before on the various debts.
Loan agreements with family and friends should
Loan agreements with family and friends should
What is the difference between a secured loan and an unsecured loan?
Secured loans have some asset pledged as collateral. If you default, then the lender can sell the asset to recover their loan amount. Unsecured loans do not have assets pledged as collateral.
Why should you avoid payday loans as a source of funds?
The annualized interest rates for payday loans are commonly several hundred percent a year making them an extremely costly source of financing.
Which of the following is a characteristic of a student loan?
The tax benefits are phased out for individuals who are in high tax brackets.
why are loan payments under the simple interest method usually lower than loan payments under the add-on interest method?
Under the simple interest method, interest is calculated on the remaining balance so the interest payments decrease and principal payments increase as the loan matures. Under the add-on-interest method, the interest payments stay the same throughout the loan even through the principal owed has decreased.
Which of the following is not one of the disadvantages of leasing a car?
Your equity in the car is limited to your lease payments.
A home equity loan is
a line of credit that allows the homeowner to borrow against the equity in their home.
In the loan application process, the information the borrowers must supply to the lenders is:
a personal balance sheet and a personal cash flow statement.
Collateral includes:
assets used to back a loan in the event that the borrower defaults.
The annual percentage rate (APR) measurement:
calculates both interest and other fees on a loan on an annualized basis.
List some possible sources of personal loans.
commercial banks, savings institutions, finance companies, and credit unions.
Simple interest is:
computed as a percentage of the existing loan amount
What is peer-to-peer lending?
conducted through online platforms such as Lending Club. Potential borrowers are matched to individuals willing to provide small loans ranging from $1,000 to $35,000.
The first step in financing a car purchase is to:
determine the amount of monthly payment you can afford.
The limited-debt solution:
has several variations but involves minimizing the amount you borrow for a car to an amount that can be repaid quickly.
Car salespeople will set the initial car price:
higher than their expected sales price.
From the personal cash flow statement, lenders can determine:
if borrowers have sufficient cash flow to cover their loan payments.
A disadvantage of deferring student loans is:
in most cases interest continues to accrue during the deferment period so the total value owed increases. Long periods of deferment can substantially increase the amount owed.
The advantages of a peer-to-peer loan are:
interest rates and origination fees are often lower. These loans are often used to consolidate debt and lower overall interest charges.
What is the no-debt solution in reference to buying a car?
involves limiting the amount you pay for a car to whatever you can afford to pay with cash.
An advantage to buying a new car is:
it can prevent you from purchasing a vehicle with undisclosed mechanical problems.
If you fail to live up to your responsibilities as a cosigner,:
it may restrict the amount you can borrow.
Interest rates are usually:
lower on secured loans because the lender has less to lose in the event the loan is not repaid.
How does a prepayment penalty impact your decision to pay a loan off early?
may charge a penalty if you opt to pay the loan off early. This fee may increase the amount needed to repay the loan, and you may be better off to continue your current repayment schedule.
When a loan is amortized it means that the principal is:
repaid through a series of equal loan payments.
Loans backed by collateral are called
secured loans
The personal loan process involves:
submitting the application, negotiating the loan contract, and negotiating the interest rate.
Aside from the interest rate, the two factors that will have the largest impact on the size of your monthly payment are:
the amount borrowed and the length of the loan.
Home equity is:
the difference between the market value of the home and the debt on the home.
Student loans are typically extended by:
the federal government or one of the financial institutions that participate in student loan programs.
If you default on a home equity loan,:
the financial institution may claim your home and use the proceeds to pay off the loan.
A disadvantage to buying a new car is:
the high cost of many new cars also means that most people will finance the purchase, and for some people a better financial option is to save up and buy a less expensive used car.
How are payments calculated under the add-on interest method?
the interest is calculated on the loan amount, the loan amount and the interest are added together, and the total is divided by the number of payments to determine the amount of the monthly payment.
How does the maturity of a loan affect the monthly payments?
the lower the monthly payments.
What are your responsibilities if you cosign a loan?
you can be required to pay the balance of the loan not repaid by the borrower.
Purchasing a new car online is not as efficient as buying a new car at a dealership because:
you cannot test drive a car online
Why may a weak economy cause the limit on your home equity line of credit to decline?
the valuation of homes tends to be relatively low because demand for homes is low under these conditions.
Why may a strong economy cause the limit on your home equity line of credit to rise?
the valuation of homes tends to be relatively strong because demand for homes is high under these conditions.
Simple interest is measured using
the principal, the interest rate applied to the principal, and the loan's maturity.
Some viable alternatives to payday loans are:
to simply not borrow from any source. If this option is not feasible consider borrowing from a friend or relative, getting a cash advance on a credit card, or selling some asset.
Debt consolidations loans are:
used to combine several debts into one larger debt.
Payday loans are:
very short-term loans obtained by writing a post-dated check. The lender will advance cash that is less than the amount of the check and then deposit the check when you indicate the funds are in your account.
You should select the shortest maturity possible:
while still maintaining liquidity.
