Exam 7: Using Consumer Loans

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -Your debt safety ratio should not exceed [20% | 30%] of your monthly take-home pay.

Credit unions grant loans only to members of the credit union.

Consumers whose debt burden has become very heavy might apply for a(n)

The annual percentage rate (APR)on a single payment loan for $1,000 at a simple interest rate of 12% is

Collateral is an item of value used to secure the principal portion of a loan.

In most cases,lenders will liquidate the collateral until the loan is paid.

Besides the finance charge,you should also consider ____ when you shop for a consumer loan.

Life insurance loans are income tax-free.

An acceleration clause

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -An [add-on | acceleration] clause allows the lender to demand repayment of the entire debt if the borrower defaults on his payments.

Because no written contract is usually required,borrowing from friends and relatives is advisable.

When comparing two installment loans with the same principal and APR,the loan with the longer maturity will have the lower monthly payment and the higher total costs.

When the simple interest method is used to determine finance charges,the interest is calculated based on the

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -Your budget should be considered [before | after] taking on a large consumer loan.

When comparing two installment loans with the same principal and APR,the loan with the shorter maturity will have the lower monthly payment and the lower total costs.

A chattel mortgage is a legal claim that gives lenders the right to liquidate specific personal property to satisfy their claims in the event of default.

An installment purchase agreement typically includes a sales contract,a security agreement,a note,and an insurance agreement.

The most accurate method currently available for calculating the annual percentage rate (APR)on an add-on loan is the Rule of 78.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -The Rule of 78 is used to calculate [APR | balance due] when an installment loan is paid off early.

A single payment loan