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60 Cards in this Set

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the interest assessed during each payment is based on the outstanding balance of the installemnt loan
simple-interest method
interest is calculated by applying an interest rate to the amount borrowed times the number of years
add-on method
special charges assessed to the borrower for paying off a loan early
prepayment penalty on add-on method loans
interest is paid up front and subtracted from the amount of the loan
discount method
The legal right to seize and dispose of (usually sell) property to obtain payment of a claim is called a lien.
True
A clause in a loan contract that makes all future payments immediately payable if the loan is in default is called a(n)
acceleration clause.*
If an item of collateral is repossessed, it may still be possible to owe more money because of a(n)
deficiency balance*
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 ?
garnishment*
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
$10
When you apply for credit the decision to accept you or not is made by the
the lender
Noninstallment credit refers to debt to be repaid in a single payment or open-ended credit.
true
With an installment purchase agreement the title passes to the buyer when the contract is signed.
True
An acceleration clause allows a borrower to pay his/her loan off early without penalty.
False
The Truth-In-Lending Act requires that both the APR and the finance charge be disclosed to installment loan applicants.
True
With the discount method, the finance charge is prepaid by the borrower, thereby reducing the actual amount obtained by the borrower.
True
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.
16
The maximum overall amount that you believe you should owe based on your ability to meet the repayment obligations is your
Debt limit
A loan backed up by collateral is referred to as a(n)
Secured Loan
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?
conditional sales contract
A written loan contract is a(n)
promissory note.
The rule of 78s is an example of a(n)
prepayment penalty.
Consumer finance companies are also known as
small loan companies.
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
Pay-day Lenders
The method commonly used to calculate the APR on installment loans is called the
n-ratio method.
Which of the following need not be included in the finance charge for a consumer loan?
optional credit life insurance premiums
For which type of interest calculation is the interest paid up-front thereby reducing the amount of money actually obtained by the borrower?
discount interest method
The APR and the rate used to determine the interest owed is the same for which method of calculating interest?
simple-interest method
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?
double
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?
nonprofit consumer credit counseling organizations
An arrangement whereby a debtor provides one monthly payment to a credit counseling agency which then distributes funds to all creditors is called
a debt management plan.
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.
True
Cosigners on loans will only be required to make the payments if the borrower declares bankruptcy.
False
With simple interest loans (both for single-payment and installment loans), the simple interest rate will be different from the APR.
False
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.
True
One way to set your debt limit is to compare monthly debt payments to
disposable personal income
After graduation, you might qualify for a reduction in your student loan interest rate if you
consolidate all your student loans, be on-time with your payments for the first 48 months, and make payments online
Which of the following are indicative of secured credit?
collaterals and cosigners
With which type of loan does a borrower obtain cash and then use it to buy goods or services?
Cash loan
Financial institutions that offer a variety of consumer loans from funds obtained primarily from depositors are called
depository institutions.
Sales finance companies specialize in
Purchase Loans
A primary advantage of borrowing from a cash-value life insurance policy is that
the interest rates are relatively low
Which type of interest calculation results in an APR identical to the rate used to calculate the dollar amount of interest?
Simple-interest
Variable-rate loans will invariably use which method for calculating interest?
Simple-interest
Refinancing or rewriting a loan for an even larger amount before it has been completely repaid is referred to as
Flipping
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?
Chapter 7
Installment credit and open-end credit are synonymous terms.
False
Being a cosigner carries little risk since the cosigner has reduced legal obligations as a secondary party.
False
Simple interest loans have no prepayment penalty.
True
Being able to get add-on loans is an indicator of credit worthiness.
False
Garnishment is a court sanctioned procedure where a portion of a debtor's income is set aside to pay a debt.
True
The amount of your take-home pay left after all deductions for taxes, insurance, union dues, and the like is called your
Disposable Personal Income
A debt-to-equity ratio of ____________________ percent or more indicates the person is carrying too much debt.
33
Having to pay additional monies even after repossession of the goods serving as collateral for a loan results from a
deficiency balance.
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)
debt-consolidation loan.
Credit unions usually offer what service for free when you obtain a loan?
credit life insurance
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)?
acceleration clause
Charging interest periodically over the course of the loan based upon the unpaid balance each period is referred to as
Simple Interest
The legal proceeding by which collateral is seized by a lender is referred to as
Repossession
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?
Garnishment
A court order that temporarily prevents all creditors from recovering claims arising before the start of a bankruptcy proceeding is called a(n)
stay