Personal Finance Midterm
What are the 5 C's of credit?
1. Character 2. Capacity 3. Capital 4. Collateral 5. Conditions
What is the annual percentage yield (APY) on a savings account with $1,500 balance and earns $18 in interest per year?
1.2%
The difference between a debit card and a credit card is that?
A debit card draws funds from your checking or savings account and a credit card is a type of loan
A certificate of deposit is?
A savings deposit that earns higher interest because it is left in the account for a specified period of time
The percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period
Annual Percentage Yield (APY)
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
Asset Management Account
Which of the following is true about payday loans or cash advance companies?
Charge extremely high interest for their "loans"
One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts
Closed-End Credit
A valuable asset that is pledged to ensure loan payments
Collateral
A financial institution that offers a full range of financial services for individuals, businesses, and government agencies
Commercial Bank
The general economic conditions that can affect a borrowers ability to repay a loan
Conditions
The use of credit for personal needs (except a home mortgage)
Consumer Credit
An arrangement to receive cash, goods, or services now and pay for them in the future
Credit
A user-owned nonprofit, cooperative financial institution that is organized for the benefit of its members
Credit Union
Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments
Fair Credit Billing Act (FCBA)
The total dollar amount paid to use credit
Finance Charge
What dictates wether people spend or save?
Inflation
A periodic charge for the use of credit
Interest
The dollar amount, which may or may not be borrowed, that a lender makes available to a borrower
Line of Credit
The ability to purchase using a mobile device
Mobile Commerce
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
Money Market Account
A savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments
Money Market Fund
To minimize your borrowing costs, you can lower the risk to the lender by?
Offering collateral to secure the loan
A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment
Open-End Credit
All of the following are advantages of credit EXCEPT?
Over use of credit can lead to bankruptcy
An automatic loan or transfer from savings to cover the amount you are over drawn in your checking account
Overdraft Protection
Offers an ability to transfer money to others for daily business activities
Payment Services
The fastest growing payment method
Prepaid Debit Cards
All of the following are factors creditors consider to determine credit worthiness EXCEPT?
Race, are you in the preferred group of people
The percentage of increase in the value of savings as a result of interest earned: also called yield
Rate of Return
A credit union offers lower fees and higher interest on savings because?
They are nonprofit organizations with "profits" being distributed to the members
A legal agreement that provides for the management and control of assets by one party for the benefit of another
Trust
Consumer credit is based on?
Trusting that people will be able to and are willing to pay bills when they are due
Low-risk savings program guaranteed by the federal government
U.S. Savings Bond
When interest rates are rising you should?
Use long-term loans
The difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy is?
With Chapter 7 most of your debt is eliminated and with Chapter 13 your debt is restructured so you can afford the payments
The percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparisons with other sources of credit
Annual Percentage Rate (APR)
Savings accounts in banks are considered a safe investment because?
Banks are insured by the government backed FDIC
A process that calculates interest based on previously earned interest
Compounding
An agency that collects credit information and compiles a credit history for individuals and businesses
Credit Bureau
A financial institution that is owned by depositors and specializes in savings accounts and mortgage loans
Mutual Savings Bank
A prearranged loan from a bank for a specified amount; also called a bank line of credit
Revolving Check Credit
Provides safe storage of funds for future use
Savings
A financial institution that traditionally specialized in savings accounts and mortgage loans
Savings and Loan Association (S&L)
Interest computed on principal only and without compounding
Simple Interest
When reconciling your checking account you should?
Subtract fees and ATM withdrawals but add interest earned and direct deposits to your check register balance
Which of the following decrease the rate of return on your savings?
Taxes
The total dollar amount paid to use credit is?
The finance charge
What is a warning sign that you are in financial trouble?
You borrow money to pay off old debts
The simple interest charge for a $1,500 loan with a 6% interest rate paid in 3 equal installments is?
$60
A computer terminal used to conduct banking transactions; also called a cash machine
ATM
The borrower's financial ability to meet credit obligations
Capacity
The borrower's assets or net worth
Capital
Which of the following is an example of closed-end credit?
Car loan
A savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate
Certificate of Deposit (CD)
The borrower's attitude toward his or her credit obligations
Character
A plastic access card used in computerized banking transactions; also called a cash card
Debit Card
Simple interest on loans is lowest for?
Declining balance loans
What is the formula for simple interest?
I = Principal x Rate x Time
