16 terms

ECON: Unit 7 Personal Finance - Quiz #2

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Terms in this set (...)

sales tax
A tax on a sale of merchandise or services; it is considered a regressive tax because it affectss
poor people more than wealthy people because both groups will be paying the same tax rate for the same good which means it takes a
greater percentage of income from a low-income person than from a high-income person.
property tax
the taxation of the value of real property (buildings and land) and personal property
(stocks, bonds, etc.). This tax is collected at the state and local level. These taxes are used to fund schools.
credit
An arrangement to receive cash, goods, or services now and pay for them in the future. You are usually charged interest for these loans.
credit worthiness
a measure of a variety of factors, but it boils down to an attempt to determine
whether you'll be able to pay back a loan properly. Some factors that affect credit worthiness:
• character (credit score)
• capacity to pay
• collateral
collateral
is something of value a borrower can use to back the loan if the borrower can no longer pay the scheduled payments. For example, a home mortgage is available to people with lower incomes because the bank can seize the home if the mortgage is not paid.
credit score
A number assigned to a person that indicates to lenders their capacity to repay a loan. 800+: Exceptional. You'll probably have an easy time getting approved for credit and you'll have a lower interest rate; 799 to 700: Very good;
670 to 739: Good; 580 to 669: Fair; 579 and below: Poor. These scores indicate a very high risk of default. You'll have a much harder time getting approved for new credit products with a score in this range.
annual percentage rate (APR)
the yearly rate charged for borrowing or the yearly rate earned through an
investment.
simple interest
the interest is determined annually
with the original loan amount; what you want on a loan
compound interest
future interest is determined with the
existing amount owed. These rates could lead to you owing more money in order to pay off the loan. You want this type of interest on an investment.
fixed interest rate
i the interest rate is determined when the loan is originated, and it does not change
variable interest rate
the interest rate fluctuates (changes) over time because it is based on an index that changes periodically; can be risky
insurance
allows a person or business to pay a relatively small amount of money (a premium) in the present to purchase asset protection against the possibility of a future financial loss caused by an unforeseen event
deductible
the amount of money the insured must pay when a claim is filed with the insurance company. For instance, you may need to pay $1,000 to your insurance company before the company fixes your car after an accident
premium
an amount to be paid for an insurance policy. The higher risk you are (as a driver or with your health) the higher these will be.
disability insurance
this provides people with income in case they become injured or are unable to work at a job;
life insurance
provides a monetary payment when the insured person dies