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Student and Consumer Loans
Terms in this set (62)
Consumer loans are less formal than credit cards and/or other open credit.
Bridge loans provide short−term funding until longer−term or additional financing is found.
Defaulting on a secured loan may lead to the collateral being repossessed.
A recourse clause defines whatever actions a lender can take to recover money from you in case you default on the loan.
A short−term loan that provides funding until a longer−term loan can be secured is called a(n)
You are considering building a new deck on your home, what factors should you consider when deciding whether to borrow the money or take the money out of your savings account?
What impact the savings withdrawal will have on your liquidity, You should compare the after−tax return on your savings with the after−tax APR on your loan.
A ________ is tied to a market interest rate, such as the prime rate or the six−month Treasury bill rate.
What are the risks to the borrower with adjustable−rate loans?
It is harder to budget for loan payments that may increase during the term of the loan, That the market rates of interest may increase during the term of the loan.
The "Repo Man" recently repossessed your car for failure to make payments. You still owed $5,000 on the loan, but since it was always broken, you were glad to get rid of it anyway. The bank sold the car at a wholesale auction for $3,000. The bank also paid the "Repo Man" $200 and paid attorney fees of $300. Based on the deficiency payments clause in your loan, what are you liable for?
Which one of these clauses is not found in a typical loan contract?
Home equity/second mortgage loans have two important advantages over most other types of loans. They are
tax deductibility of interest and lower interest rates.
A payday loan is a reasonable option if you need a luxury item like a big screen TV.
The simple interest method is the most common method of calculating payments on an installment loan.
The annual percentage rate is the simple percentage cost of all finance charges over the life of the loan on an annual basis.
Amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover interest, and the later payments have a larger proportion going towards the payment of principal.
The finance charges for a loan may include
fees for a credit check, required insurance fees, interest payments.
make money by keeping borrowers in debt, make money by providing one−time assistance during a time of financial need, encourage repeat borrowing
In driving around town one day, you noticed most of the payday loan companies were located close to the college and the local military base and there were none out in the newer neighborhoods. Why do you think this is so?
Payday lenders tend to focus on less experienced borrowers who typically don't make a lot of money.
Congratulations! You have just graduated from college and are determining what your monthly student loan payments will be. After consolidating all of your loans, you have a balance of $18,000. At 8% APR for 10 years, what will your monthly payments be?
A loan that is paid back in a single lump sum payment at the due date of the loan is commonly called a(n)
Your brother, a banker, has just approved a loan for you, an add−on interest loan. You will borrow $2,000 for one year with a 12% annual interest rate. What is your monthly payment?
What strategy should you use to obtain the lowest possible APR on a loan?
Provide collateral, Keep the term (length) of the loan as short as possible, Get a variable−rate loan, Make a large down payment.
Which of the following statements regarding the risk−return relationship is most accurate?
Higher credit scores are associated with lower APRs.
Of the following possible sources of credit, which typically has the lowest borrowing rates?
Not having health insurance could lead to filing for bankruptcy if one has incurred large medical expenses and is unable to pay these bills off in a timely manner.
A Chapter 13 personal bankruptcy is characterized by all of the following except
your creditors vote on restructuring your debt repayments.
Which of these are possible options for most people who cannot pay their bills?
Declare Chapter 13 personal bankruptcy, Get help from a credit counselor, Declare Chapter 7 personal bankruptcy, Obtain a debt consolidation loan.
Income−based repayment plans are based on a percentage of discretionary income, not the amount owed, and provide a 25−year term of payments before loan forgiveness.
Direct subsidized loans are made only to undergraduates who demonstrate financial need.
Student loans are loans with federally subsidized interest rates given, based on financial need, to students making satisfactory progress in their degree programs.
Under a Federal Direct Loan, you don't begin making payments until six months after graduation.
________ is when a borrower is allowed to temporarily stop making student loan payments for a qualified reason such as an illness, financial hardship, or serving in a medical or dental internship or residency.
Which statement is true regarding direct unsubsidized loans?
Such loans are made to undergraduate, graduate, and professional students.
A federal direct subsidized loan has tremendous advantages over other types of loans, including
the interest is deferred while you are in school.
Which is better, a fixed−rate loan or a variable−rate loan?
Neither is necessarily better; the choice illustrates the "risk and return go hand in hand" principle.
Unsecured loans are generally less risky to lenders than secured loans. Therefore secured loans typically charge a higher APR than unsecured loans.
Student who are awarded grants must pay back a percentage of the amount after graduation.
If you own a home with a market value of $175,000 and you have an outstanding balance on your mortgage of $60,000, your home equity is
An acceleration clause states that if you default on a secured loan, not only can the lender repossess whatever is secured, but if the sale of the asset does not cover what you owe, you can also be billed for the difference.
An advantage that direct or subsidized student loans have over other types of loans is
the after−tax interest rates are very attractive compared with other loans, you can borrow at a below−market rate, regardless of your credit situation.
Lenders tend to like to see borrowers put down large down payments for loans because this is seen as increasing the borrower's desire to pay off the loan since the borrower now has equity in the collateral.
Variable−rate loans tied to long−term rates expose you to more risk of rate changes than variable−rate loans tied to short−term rates.
The interest that you pay on your student loans will lower your taxable income if you meet IRS guidelines.
When do the payments on a Stafford Loan begin?
None of the above is correct.
A balloon loan calls for repayment of both interest and principal at regular intervals, with the payment levels set so that the loan expires at a preset date.
An example of a consumer loan is a(n)
Interim loan and unsecured loan
Which of the following characterize secured loans?
They reduce the lender's risk, Interest rates tend to be lower than unsecured loans, They are typically easier to get, They are backed with either physical or investment assets.
What will the courts do if you file Chapter 7 personal bankruptcy?
Allow you a chance to start again financially, Confiscate most of your assets, Liquidate most of your assets to pay off creditors, Eliminate most of your debts.
Under a Stafford Loan, parents borrow money for their child's education.
What can a couple seeking to get out of debt do?
Avoid future use of credit card debt, except on a emergency basis, Use savings to pay off current debt, See if their creditors will restructure their loans, Seek help from a reputable credit counselor.
The ________ is the true simple interest rate paid over the life of a loan and provides a reasonable approximation for the true cost of borrowing.
Consumer loans can range from unsecured, fixed−rate, single−payment loans to secured, variable−rate, installment loans.
Alice has fallen behind on her signature loan. She recently received a notice from the lender that her wages were going to be garnished to pay off the debt. What is the loan clause that allows the lender to take this action against Alice because she was in default?
A 529 plan is a tax−advantaged savings plan designed to encourage parents to save for future college costs for their children. The plan comes in two forms: pre−paid tuition plans and college savings plans.
usually have rate caps that prevent them from varying too much.
What is your potential liability from the deficiency payments clause if you default?
You will have to pay any legal or repossession fees incurred by the lender, You will have to pay the remainder of the loan balance if the proceeds from the repossession are not sufficient to pay off the loan.
Student loans are a smart source of financing for school because you only pay part of the interest charges and the rest is subsidized by the lender.
What is the name of the interest rate banks charge to their most creditworthy customers?
Suppose you borrowed the money you needed to purchase an automobile and then failed to make a scheduled payment by the due date. Technically, you
Are in default
A(n) ________ loan calls for the repayment of both the interest and the principal at regular intervals and is commonly referred to as loan amortization.
Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases
the payment amount would increase (other things held constant).
Which of the following is not required by law to be on a loan disclosure statement?
Annual percentage rate, The total amount financed, The total amount of payments, All finance charges
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