Family Finance Exam 2 Chapter 7

Front 1

the interest assessed during each payment is based on the outstanding balance of the installemnt loan

Back 1

simple-interest method

Front 2

interest is calculated by applying an interest rate to the amount borrowed times the number of years

Back 2

add-on method

Front 3

special charges assessed to the borrower for paying off a loan early

Back 3

prepayment penalty on add-on method loans

Front 4

interest is paid up front and subtracted from the amount of the loan

Back 4

discount method

Front 5

The legal right to seize and dispose of (usually sell) property to obtain payment of a claim is called a lien.

Back 5

True

Front 6

A clause in a loan contract that makes all future payments immediately payable if the loan is in default is called a(n)

Back 6

acceleration clause.*

Front 7

If an item of collateral is repossessed, it may still be possible to owe more money because of a(n)

Back 7

deficiency balance*

Front 8

Which process refers to a court order to an employer to send a portion of a borrower’s wages to a lender to whom the borrower has defaulted ?

Back 8

garnishment*

Front 9

If your credit card has an APR of 12% and your average daily balance is $1000 (no grace period), your interest for the month is

Back 9

$10

Front 10

When you apply for credit the decision to accept you or not is made by the

Back 10

the lender

Front 11

Noninstallment credit refers to debt to be repaid in a single payment or open-ended credit.

Back 11

true

Front 12

With an installment purchase agreement the title passes to the buyer when the contract is signed.

Back 12

True

Front 13

An acceleration clause allows a borrower to pay his/her loan off early without penalty.

Back 13

False

Front 14

The Truth-In-Lending Act requires that both the APR and the finance charge be disclosed to installment loan applicants.

Back 14

True

Front 15

With the discount method, the finance charge is prepaid by the borrower, thereby reducing the actual amount obtained by the borrower.

Back 15

True

Front 16

Using the debt payments-to-disposable income method, a person whose monthly debt payments excluding their mortgage, what percentage of their disposable income would be considered seriously overindebted.

Back 16

16

Front 17

The maximum overall amount that you believe you should owe based on your ability to meet the repayment obligations is your

Back 17

Debt limit

Front 18

A loan backed up by collateral is referred to as a(n)

Back 18

Secured Loan

Front 19

Which type of purchase loan calls for title of the property involved to transfer to the buyer only when the final payment has been made?

Back 19

conditional sales contract

Front 20

A written loan contract is a(n)

Back 20

promissory note.

Front 21

The rule of 78s is an example of a(n)

Back 21

prepayment penalty.

Front 22

Consumer finance companies are also known as

Back 22

small loan companies.

Front 23

Sources of credit who accept a personal check but agree not to deposit it for a week or two to allow the writer to obtain the funds to repay the amount obtained are called

Back 23

Pay-day Lenders

Front 24

The method commonly used to calculate the APR on installment loans is called the

Back 24

n-ratio method.

Front 25

Which of the following need not be included in the finance charge for a consumer loan?

Back 25

optional credit life insurance premiums

Front 26

For which type of interest calculation is the interest paid up-front thereby reducing the amount of money actually obtained by the borrower?

Back 26

discount interest method

Front 27

The APR and the rate used to determine the interest owed is the same for which method of calculating interest?

Back 27

simple-interest method

Front 28

The APR for an installment loan using the add-on method is approximately what proportion of the add-on rate that is used to calculate the loan interest?

Back 28

double

Front 29

Which of the following provides individual credit counseling, assistance with financial problems, educational materials on credit and budgeting, and a debt management plan as an alternative to bankruptcy?

Back 29

nonprofit consumer credit counseling organizations

Front 30

An arrangement whereby a debtor provides one monthly payment to a credit counseling agency which then distributes funds to all creditors is called

Back 30

a debt management plan.

Front 31

Setting debt limits based on a continuous debt method assumes people are too far in debt if they cannot get out of debt every four years, ignoring mortgage and education debt.

Back 31

True

Front 32

Cosigners on loans will only be required to make the payments if the borrower declares bankruptcy.

Back 32

False

Front 33

With simple interest loans (both for single-payment and installment loans), the simple interest rate will be different from the APR.

Back 33

False

Front 34

With the add-on method, the finance charge is added to the amount borrowed to calculate the total amount to be repaid, which is then divided by the number of payments to arrive at a monthly payment.

Back 34

True

Front 35

One way to set your debt limit is to compare monthly debt payments to

Back 35

disposable personal income

Front 36

After graduation, you might qualify for a reduction in your student loan interest rate if you

Back 36

consolidate all your student loans, be on-time with your payments for the first 48 months, and make payments online

Front 37

Which of the following are indicative of secured credit?

Back 37

collaterals and cosigners

Front 38

With which type of loan does a borrower obtain cash and then use it to buy goods or services?

Back 38

Cash loan

Front 39

Financial institutions that offer a variety of consumer loans from funds obtained primarily from depositors are called

Back 39

depository institutions.

Front 40

Sales finance companies specialize in

Back 40

Purchase Loans

Front 41

A primary advantage of borrowing from a cash-value life insurance policy is that

Back 41

the interest rates are relatively low

Front 42

Which type of interest calculation results in an APR identical to the rate used to calculate the dollar amount of interest?

Back 42

Simple-interest

Front 43

Variable-rate loans will invariably use which method for calculating interest?

Back 43

Simple-interest

Front 44

Refinancing or rewriting a loan for an even larger amount before it has been completely repaid is referred to as

Back 44

Flipping

Front 45

For which type of bankruptcy will many of a debtor's assets be sold and the proceeds used to pay creditor with the remaining debt absolved?

Back 45

Chapter 7

Front 46

Installment credit and open-end credit are synonymous terms.

Back 46

False

Front 47

Being a cosigner carries little risk since the cosigner has reduced legal obligations as a secondary party.

Back 47

False

Front 48

Simple interest loans have no prepayment penalty.

Back 48

True

Front 49

Being able to get add-on loans is an indicator of credit worthiness.

Back 49

False

Front 50

Garnishment is a court sanctioned procedure where a portion of a debtor's income is set aside to pay a debt.

Back 50

True

Front 51

The amount of your take-home pay left after all deductions for taxes, insurance, union dues, and the like is called your

Back 51

Disposable Personal Income

Front 52

A debt-to-equity ratio of ____________________ percent or more indicates the person is carrying too much debt.

Back 52

33

Front 53

Having to pay additional monies even after repossession of the goods serving as collateral for a loan results from a

Back 53

deficiency balance.

Front 54

A loan used to pay off all other debts and reduce the total monthly payments by extending the payback period or by obtaining a lower APR is called a(n)

Back 54

debt-consolidation loan.

Front 55

Credit unions usually offer what service for free when you obtain a loan?

Back 55

credit life insurance

Front 56

A common clause in installment loan contracts stating that all remaining payments are due and payable if, perhaps, even one payment is missed, is called a(n)?

Back 56

acceleration clause

Front 57

Charging interest periodically over the course of the loan based upon the unpaid balance each period is referred to as

Back 57

Simple Interest

Front 58

The legal proceeding by which collateral is seized by a lender is referred to as

Back 58

Repossession

Front 59

Under which of the following processes are a debtor's assets sold and the proceeds used to pay each creditor his or her proportionate share, after which the remaining debts are absolved?

Back 59

Garnishment

Front 60

A court order that temporarily prevents all creditors from recovering claims arising before the start of a bankruptcy proceeding is called a(n)

Back 60

stay