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