Personal Finance

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if you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about

1.

Experts suggest that the debt payments-to-income ratio should be a maximum of

20%

A typical grace period offered by many credit card issuers is

20-25 days

Which of the following is NOT associated with credit cards?

A debit to your checking account

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by:

Adding up basic monthly expenses and subtracting this total from take-home pay, plus figuring out what to give up to make the monthly loan payment.

When misused, credit can result in

All of the choices are correct.

The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on

All of these are prohibited

A loan officer is examining whether or not to offer you a loan today. Specifically, she is examining your income and debts. Which of the five Cs of credit is the loan officer reviewing?

Capacity

Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using

Closed-end credit

The use of property or savings to secure a loan relates to

Collateral

Home equity loans

Have interest that is tax-deductible

If you miss payments on a home equity loan, you can lose your

House

The periodic charge for the use of credit is called

Interest

Home equity loans should be used for

Major expenses, such as home improvements or education

When calculating the debt-to-equity ratio, which of the following is NOT included?

Mortgage balance

Which of the following is often considered to offer the least expensive loans (i.e., loans with low interest)?

Parents or family members

A cash advance

Requires you to pay interest every day until you repay the cash advance

A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is

Single lump-sum credit

A line of credit is

The maximum dollar amount of credit the lender has made available to a borrower

Bankruptcy courts treat gift cards

The same way they handle unsecured debt.

Many people expect which of the following?

Their incomes to increase to make it easier to make payments on past credit purchases

Which of the following is NOT correct

Using credit can increase the amount of money that will be available to spend in the future

Which of the following is NOT correct?

Using credit cards typically provides a "float" of up to 10 days.

Which of the following is the best scoring technique used in credit applications for consumers with limited credit histories?

VantageScore

Before buying goods and services on credit, a consumer should consider all of the following except

Whether the good or service will be worth more because it was purchased with credit instead of cash

Which of the following can result from a failure to repay a loan?

all of the above can lead to failure to repay a loan

Which of the following is a valid reason for using credit?

all of the reasons

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

all of these should be considered

Installment credit, in which the debt is repaid in equal installments over a specified period of time, exploded on the American scene with the advent of the:

automobile

The question "What are your assets and net worth?" relates to

capital

the question "Will you repay the loan?" relates to

character

A credit card holder who pays off his balances in full each month is known as

convenience user

Consumer credit:

dates back to colonial times

Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?

debit card

Which of the following is an example of open-end credit?

department store credit card

A consumer applies for open-end credit to make a single purchase, such as a large appliance.

false

A disadvantage of using credit is the convenience it offers when making a hotel reservation or renting a car.

false

A personal bankruptcy remains on a credit file for no more than five years.

false

A secured credit card is most appropriate for someone with a strong credit history

false

A trade-off of using credit is that it increases the amount of money that will be available to spend in the future.

false

According to law, a creditor may threaten your credit rating while you are negotiating a billing dispute.

false

According to the Fair Credit Billing Act of 1975, a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.

false

Although credit allows immediate satisfaction of needs and desires, a greater advantage is that it increases total purchasing power.

false

Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

false

Consumer credit may allow businesses to be more efficient or more productive.

false

Consumer credit refers to the use of debit cards for personal needs.

false

During the grace period, finance charges are assessed at only half the normal rate.

false

Experts suggest that you spend more than 20 percent of your net (after-tax) income on consumer credit payments.

false

FICO is a better score to use than VantageScore for consumers with limited credit histories

false

In the five Cs of credit, capacity refers to the borrower's trustworthiness and stability.

false

In the five Cs of credit, capital refers to the borrower's ability to pay additional debts.

false

In the five Cs of credit, conditions refer to what will happen if the borrower does not repay the loan

false

Interest paid on a credit card is tax-deductible.

false

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.

false

The Equal Credit Opportunity Act requires that a creditor should not turn you down for credit based on your age as long as you are old enough to sign a legal contract, which is usually allowed at age 16.

false

The add-on interest calculation uses this formula: Interest = Principal × Rate of interest × Time.

false

The amount of interest paid on a bill is not related to the length of the loan

false

The annual percentage rate is lower than the stated rate for loans that are repaid in monthly payments.

false

The debt-to-equity ratio is calculated by dividing your total liabilities, including your mortgage, by your net worth.

false

The easiest loans to obtain are also the least expensive.

false

The expected rate of inflation should not be considered when determining the amount of interest a lender should charge.

false

The higher your FICO score, the more risk you pose to creditors.

false

The longer it takes for you to pay off a bill, the less interest you pay

false

The most expensive loans are often provided by parents or other family members

false

Typically, credit use is not a contributing factor to living beyond your means.

false

Using the simple interest formula, the interest on a $1,000 loan at 5 percent interest for one year is $55.

false

You have a legal right to sue a credit bureau if you observe an error in your file.

false

A direct loan for personal purposes, home improvements, or vacation expenses is called

installment cash credit.

Which of the following is an example of closed-end credit?

mortgage loan

Which of the following is NOT a valid reason for borrowing?

paying for everyday living expenses

The maximum dollar amount of credit the lender has made available to a borrower

revolving check credit

Perhaps the greatest disadvantage of using credit is

the temptation to over spend

A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.

true

A credit file can include your spouse's name and Social Security number.

true

According to the Fair Credit Billing Act of 1975, a consumer may tell a credit card company to stop payment for a defective good if the consumer has made a sincere attempt to resolve the problem with the store

true

Although credit allows immediate satisfaction of needs and desires, credit does not increase total purchasing power.

true

Closed-end credit is used for a specific purpose and involves a specific amount.

true

Consumer credit dates back to colonial times where farmers came to use it extensively.

true

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

true

Credit can indicate stability since lenders consider you a good risk.

true

Economists recognize consumer credit as a major force in the American economy.

true

FICO scores are used by creditors to predict how likely it is that you will repay a loan

true

If you are a cosigner for a loan and the debt is not repaid, that fact will appear on your credit report.

true

If you purchase something with a credit card, the finance charges you pay on an item could end up being more than its worth.

true

In the five Cs of credit, character refers to the borrower's trustworthiness and stability.

true

Installment sales credit is a loan that allows a consumer to purchase high-priced items, such as large appliances or furniture.

true

Most information in your credit file (except bankruptcies) may be reported for only seven years

true

Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

true

Researchers have discovered a link between credit scores and impatience.

true

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it more difficult for consumers to file a Chapter 7 bankruptcy and forces them into a Chapter 13 repayment plan

true

The Fair Credit Reporting Act, enacted in 1971, places limits on who can obtain your credit report.

true

The Truth in Lending Act requires that open-end creditors explain how they calculate the finance charge.

true

The easiest loans to obtain are also the most expensive. The most expensive loans are provided by finance companies and pawn shops.

true

The information gathered from your loan application and the credit bureau are factors of your credit rating.

true

The least expensive loans (loans with low interest) are often provided by parents or other family members.

true

The longer the term for a loan at a given interest rate, the greater the amount you must pay in interest charges.

true

To protect your credit card, you should keep a record of your credit card number separate from your card.

true

When used effectively, credit can help a consumer have more and enjoy more.

true

You can lend money to micro-entrepreneurs through Kiva.org, a microlending website.

true

You may not know that your identity has been stolen until you get bills for a credit card account that you never opened

true


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