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chapter 7

Terms in this set (18)

Joshua recently purchased a new home. His lender required him to purchase credit life insurance on the loan in the event that he died before the mortgage is paid off. What is the loan clause that allows his lender to require him to purchase this additional insurance?
Insurance agreement clause
Fred ran short on cash and borrowed $300 through a Payday Loan company. The company charged him a fee of $60 to borrow the $300 for 14 days. Using the simple interest method calculate what interest rate was Fred charged for the aforementioned loan.
NOT 5.21%
The APR is larger when money is lent under the discount method than when it is lent under the simple interest method.
true
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?
$2,500
Consumer loans can range from unsecured, fixed-rate, single-payment loans to secured, variable-rate, installment loans.
true
You are considering a home equity loan. Your marginal tax bracket is 25%. You want to borrow $30,000 and are quoted an APR of 10%. How much money would you save in taxes in the first year if you use the tax-deductible home equity loan?
NOT $920
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.
false
Student who are awarded grants must pay back a percentage of the amount after graduation.
false
Which statement is true regarding direct unsubsidized loans?
Such loans are made to undergraduate, graduate, and professional students.
Many lenders use the 28/36 rule in evaluating mortgage applications. If your mortgage payment itself is 28% of your gross income, that means that the remainder of your monthly debt must be ________% or less.
NOT 36
Many lenders will hold Dave to the 28/36 rule in evaluating his application for a mortgage. What does the 36 mean?
NOT Debt payments must be less than 36% of his monthly take-home pay.
Suppose that you are interested in buying a home, but are unsure of how much you can afford. What is the best way to determine your prospects for obtaining a mortgage?
Both Figure the 28/36 rule and Determine what your mortgage payment will be are correct answers
What can a couple seeking to get out of debt do?
a) Seek help from a reputable credit counselor
b) Avoid future use of credit card debt, expect on emergency basis
c) Use savings to pay off current debt
d) See if their creditors will restructure their loans
e) All of the above are correct
All of the above are correct.
The ________ is the automatic repayment plan with a 10-year term.
standard repayment
You just received a loan from your banker to buy seed and plant your alfalfa field. The loan is a discount loan and is for $5,000 for 1 year and the quoted rate was 10%. What is your APR?
11.11%
A simple interest installment loan calculates interest on the unpaid balance. An add-on
both calculates interest on the original balance and is more costly.
You have just obtained a personal loan for a new home movie system under the simple interest method. You have borrowed $12,000 for 9 months at an annual rate of 10%. Your marginal tax rate is 28%. What are the total interest charges you would pay if the loan is paid off in one payment at the end of the nine month period?
$900
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.
true
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