Personal Finance Chapter 4 Test

Define tax reduction

an expense, such as a charitable contribution, that can be deducted from one's taxable income

What is an introductory rate?

an interest rate charged to a customer during the early stages of a loan; the rate often goes up after a specified period of time

Define debt

an obligation of repayment owed by one party (the debtor/borrower) to a second party (the creditor/lender); in most cases this includes repayment of the original loan amount plus interest

What is a home equity loan?

borrowing money against your house -like any other debt, this loan is a bad idea: it often comes with a higher variable interest rate and if there comes a time when you can't make the payments, you risk losing your home!

Define delinquency

broadly refers to a borrower not being current on his or her payments

What is the largest purchase most consumers make that goes down in value?

buying a new car (don't do it, man)

What is a credit bureau?

commonly referred to as consumer reporting agencies or credit reporting agencies

What is revolving credit?

credit in which a pre-established amount of money is borrowed repeatedly as long as the account is in good standing

Define installment

credit that you use to borrow money and promise to repay in equal amounts over a specific period of time

What is the most successfully marketed product?

debt

What is the fastest growing white-collar crime in North America today?

identity theft

Define surrender of collateral

in a bankruptcy proceeding, a debtor can give up property (collateral) to the creditor in exchange for a clean slate

How much value does a new car lose within the first four years?

it loses 70% of its value

What is FICO?

it stands for Fair Isaac Corporation -developed a score-based rating system used to measure an individual's credit risk

What will taking on a lot of debt when you're young do for you later in life?

it will limit your options later in life

What is the difference between national debt and personal debt?

national debt is the amount of money a country owes, whereas personal debt is the amount of money an individual owes

What is fleecing?

obtaining a great deal of money from someone, typically by overcharging or swindling them -the term Dave uses instead of saying "leasing"

What does Proverbs 22:7 say?

"The borrower is slave to the lender."

What in the world is the Federal Trade Commission?

(FTC) one of many U.S. federal agencies that regulate the consumer credit system and enforce laws related to it

What are unsecured loans?

- loans given to borrowers based on their financial resources or ability to repay the loan - nothing secures the loan. in other words, the lender does not have rights to a specific asset if the loan is not repaid

What does Dave call a FICO score?

an "I love debt" score

What is layaway?

an agreement in which the seller reserves an item for a buyer until the buyer pays for the item in full

What is a credit card?

a type of card issued by a bank that allows users to finance a purchase

Define annual fee

a yearly fee that's charged by the credit card company for the convenience of the credit card

What is a variable rate mortgage?

-for adjustable rate mortgages -start with a lower rate(may stay the same for months or years), but when this "introductory period" is over, your interest rate will change and the amount of your monthly payment will likely go up (that's no bueno)

What are secured loans?

-usually needed when borrowing large amounts of money -the loan is "secured" with collateral. in other words, if you default on the loan and your house was used as collateral, the lender would take the house - usually have lower interest rates and longer payment terms

What are the three major credit bureaus?

1. Experian 2. TransUnion 3. Equifax

How do you avoid the three financial myths?

1. avoid debt 2. save for emergencies and large purchases 3. learn to say "no"

What are 3 financial myths that young adults fall for?

1. belief that you have to build credit 2. you can spend money on whatever you want in college and pay for it later 3. you need a new car

What are the five components of a FICO score?

1. debt history 2. debt levels 3. duration of the debt 4. type of debt 5. new debt

What are 3 ways you lose money when buying a new car?

1. payments 2. interest 3. depreciation

What percent of millionaires are first generation millionaires?

80%

Debt is not a ______; it's a _______.

Debt is not a privilege; it's a product.

What is a fixed rate mortgage?

The interest rate is set when you take out the loan, and it will not change. Therefore, your monthly payments will never change

What does garnishment mean?

a court-ordered attachment that allows a lender to take monies owed directly from a borrower's paycheck; only allowed as part of a court judgment

What is a loan?

a debt evidenced by a "note," which specifies the principal amount, interest rate, and date of repayment

What is depreciation?

a decrease or loss in value

What is a credit report?

a detailed report of an individual's credit history

What is interest?

a fee paid by a borrower to the lender for the use of borrowed money; typically interest is calculated as a percentage of the principal (original loan amount)

Define bankruptcy

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

What is a car lease?

a long-term rental agreement; a form of securing long-term debt (well, doesn't that sound lovely)

What is a credit score?

a measure of an individual's credit risk; calculated from a credit report using a standardized formula

What is an adjustable rate mortgage (ARM)?

a mortgage with an interest rate that changes based on market conditions -the intention is to transfer the risk of higher interest rates to you, and, in return, the lender gives a lower rate up front

Define repossession

process of a lender taking something back (like a car) for failure to make payments

What is an annual percentage rate (APR)?

the cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan

Define debt snowball

the preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance; minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments

Define loan term

the time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term

Why should everyone write a credit report at least once a year?

to check for identity theft

True or false: Debt is not a service or reward that is offered to help.

true

What is a reverse mortgage?

when a homeowner borrows against the equity in their home and obtains monthly, tax-free payments from the lender