Personal Finance Chapter 7 HW Part I

The Truth in Lending law of 1969 requires lenders to state the cost of borrowing as specific --- amount so that consumers know exactly what the credit charges are.

dollar

Why are installment loans a cheaper alternative to credit cards?

- They may carry a lower interest rate, - They are the less expensive credit option for loans that are repaid over a period of many months or years

What generally are generally considered to be expensive sources of loans?

Appliance, finances companies, bank credit cards and department stores.

Advantages of borrowing from a credit union are:

They are patient with borrowers and provide personalized service.

Family members may only charge interest they would have earned on the money if they had deposited it in a ----account.

Passbook

Most credit cards fo not have a grace period of cash advances, which means:

You owe interest for every day until you repay the advance.

Before you borrow money, you should ask yourself if you need a loan, if you can ---- a loan and if you qualify for a loan.

afford

Long-term financing is more costly than short-term financing because:

interest charge is more

If you borrow $200 and it cost you $27 in interest with a service charge of $6, what is the finance charge?

$33 (Finance charge = interest + service charge).

Ways to lower lender risk and lower the cost of borrowing are:

- Variable interest rate - Up-front cash - Secured loan - Shorter term

Most credit card carry a special ----, based on the percentage of the amount borrowed, that is applied when cash advance is taken out.

Fee

The interest rate on cash advances if often ---- than the rate on purchases.

Greater

Credit cards are more dangerous than installment loans because?

A credit card is easier to use than taking out an installment loan.

TRUE OR FALSE The two types of credit are closed-end and free credit.

False

A reason why people tend to choose long-term financing is because:

They tend to make smaller monthly payments.

Simple interest (I) is calculated as follows: Principal X Rate of Interest X ----

Time

TRUE OR FALSE In most cases, it is less expensive to borrow money using certificate of deposit as collateral for a loan than if you used you car.

True

TRUE OR FALSE Loans from finance companies and appliance stores end to be the highest cost loans.

True

TRUE OR FALSE You must qualify to be a member to get a loan at a credit union.

True

TRUE OR FALSE You should avoid credit when you don't need the purchase and when you can afford to pay cash to acquire the item.

True