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Exam 2 Finance
Terms in this set (52)
1.)SUBTRACT the total of all checks written but not yet cleared
2.)ADD the amount to the statement balance
3.)SUBTRACT fees or charges and ATM withdrawals from the checkbook balance.
4.) ADD any interest to your checkbook.
Bank Reconciliation steps
use of credit by individuals for personal needs, except a home mortgage. major force in our economy.
one time loans for a specific purpose and a specific amount paid back in a specified period of time.
Closed End Credit
Use as needed until line of credit max reached
Open End Credit
Mortgage, automobile, installment loans for furniture, appliances and electronics
Closed End Credit Examples:
1. Installment sales credit
2. installment cash credit
3. single lump-sum credit
3 Most common types of closed end credit
credit cards, department store cards, home equity loans
Open end credit examples
Parents or family members
commercial banks, savings and loan association, credit unions
Medium Priced loans
Finance and check cashing companies. Bank credit cards and cash advances.
1.) Loan based on the current market value of your home minus the amount you still owe on the mortgage.
2.) Interest is tax deductible
3.) Should only be used for major purchases.
Home Equity Loans
should not exceed a maximum of 20% of your net income
Consumer credit payments
Monthly Debt payments/Net monthly income
Debt Payments-to-Income Ratio
Total Liabilities/Net Worth
1.) Character - will you repay a loan?
2.) Capacity - Can you repay a loan?
3.) Capital - What are your assets and Net Worth?
4.) Collateral - What if you dont repay loan?
5.) Conditions - what if your job is insecure?
Five C's of Credit
Requires out-of-date information to be deleted. Gives consumers access and the ability to correct misinformation. Places limits on who can obtain your credit report.
Fair Credit Reporting Act (1971)
agencies that collect information on how promptly people and businesses pay their bills.
Gives all applicants same rights. Credit providers may not discriminate based on age, social security, housing loans.
ECOA (Equal Credit Opportunity Act)
Percentage cost of credit on a yearly basis. Key to comparing costs when stopping for rates.
Annual Percentage Rate (APR)
1.) submit a petition to the court that lists assets and liabilities and pay a filing fee.
2.) Many but not all debts are forgiven
3.) Assets sold to pay creditors
4.) can keep some assets (home, vehicle).
5.)Intent = fresh start
Chapter 7 Bankruptcy
1.) Debtor with regular income proposes a plan to eliminate his debts over time.
2.) Info provided to court same as under chapter 7.
3.) Plan may last up to 5 years
4.) Debtor makes payment to court appointed trustee.
Chapter 13 Bankruptcy
full warranty or limited warranty
Express Warranty (usually written)
warranty of title. warranty of merchantability.
FTC required "buyers guide sticker". Warranty of merchantability.
Used Car warranties
Basic parts against defects. Power train coverage. Corrosion warranty.
New Car Warranties
1.) small cash outflow
2.) Lower monthly payments than buying
3.)Lease provides detailed records - helps if you use your car for business purposes.
4.) able to obtain a more expensive car, more often.
Leasing a motor vehicle ADVANTAGES
1.) No ownership interest
2.) must meet requirements.
3.) may have additional costs for extra mileage, turning the car in early, or for certain repairs.
Leasing a motor vehicle DISADVANTAGES
expected value of the vehicle at the end of the lease.
suggested retail price
low price quote increases with last minute add-ons
high trade in offer + high new car price
2.) interest on a loan
4.)license, registration, and taxes
Automobile Operation Fixed Costs
1.)Gas and oil
3.)maintenance and repairs
4.)parking and tolls
Automobile Operation Variable costs
1.) Return to place of purchase
2.)Contact company headquarters
3.)Obtain consumer agency assistance
4.)Take legal action
Steps to take to Resolve Consumer Complaints.
1.)easy to move
2.)fewer responsibilities for maintenance
3.)minimal financial commitment
1.)no tax benefits
2.)limitations regarding remodeling
3.)restrictions regarding pets, etc.`
1.)Pride of ownership
2.) Higher living expenses than renting
Flexible rate or variable rate mortgage. interest rate varies over the life of the loan. Rate cap restricts amount of change in rate. payment cap restricts amount of change in payment.
Adjustable Rate Mortgage (ARM)
fixed monthly payments. large financial payment after 3,5 or 7 years.
lower payments for first few years. payments go toward interest only.
Interest only mortgage
Prepaid interest as a percent of loan amount. Each point = 1% of loan amount. Premium paid to obtain a lower mortgage rate.
fixed rate, fixed payment, amortized. 5%,10%,20% down for 15,20 or 30 years.
Fixed Rate Mortgage
1.)Veterans Administration (VA)
2.)Federal housing Authority (FHA)
3.)Lower down payment than conventional.
Government guaranteed financing programs
"pay to the order of"
"For deposit only"
earns a fixed rate plus an inflation rate. twice a year inflation adjustment.
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