Deck 7: Using Consumer Loans

Question 1

The most common use of consumer loans are to purchase automobiles.

Answer 1

True

Question 2

Consumer loans are most commonly used to obtain durable goods.

Answer 2

True

Question 3

A personal,unsecured consumer loan is most frequently used to help borrowers straighten out a critical financial situation.

Answer 3

False

Question 4

Consolidation loans are used to purchase new furniture and appliances when many items are needed at the same time.

Question 5

Consumer loans,like open account credit,result from a rather informal process.

Question 6

The student loans with the best loan terms are the Stafford and the Perkins loans.

Question 7

In order to receive student loans,the student must be making satisfactory progress in his academic program.

Question 8

Consolidation loans are often used to help borrowers straighten out a critical financial situation.

Question 9

Student loans are made by banks and other financial institutions,but students apply for these loans through their universities.

Question 10

From a financial planning perspective,you should ask yourself how low of a payment you can get when considering using consumer loans.

Question 11

Consumer loans are often used by individuals today to purchase nondurable items.

Question 12

College costs have been escalating,but not as rapidly as the overall rate of inflation.

Question 13

The student loans with the lowest rates of interest and the best loan terms are the PLUS loans.

Question 14

The cash value of a whole life insurance policy can be used as a source of loan collateral.

Question 15

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

Question 16

PLUS loans are made to parents or legal guardians rather than to the student.

Question 17

College costs have been escalating faster than the overall rate of inflation.

Question 18

The student loans with the lowest rates of interest and the best loan terms are the PLUS loans.

Question 19

Borrowing to pay for a college education is a legitimate use of credit.

Question 20

Earnings on 529 college savings plans can be tax free when used for qualifying college education expenses.

Question 21

The repayment period on most installment loans is six to twelve months.

Question 22

Most loans made by consumer finance companies are for larger amounts and are made to low risk borrowers.

Question 23

Single payment loans are used mostly for short-term financing.

Question 24

Credit unions dominate the consumer loan market.

Question 25

Credit unions offer some of the most attractive loan terms available.

Question 26

When the market interest rate goes up,the rate on variable rate loans goes up.

Question 27

Variable rate loans are desirable if interest rates are expected to fall in the future.

Question 28

Both single-payment and installment loans can have variable interest rates.

Question 29

Installment loans are typically repaid in one payment.

Question 30

Sales finance companies commonly purchase the retail installment contracts of businesses that sell big-ticket items such as automobiles,furniture,and appliances.

Question 31

Consumer finance companies usually charge lower rates of interest than commercial banks.

Question 32

The primary type of loan made by a savings and loan association is the long-term installment loan used for the purchase of a home.

Question 33

Installment loans are typically repaid in monthly payments.

Question 34

Savings and loan associations are allowed to make loans for things like cars,boats,and motorcycles.

Question 35

Savings and loan associations dominate the consumer loan market.

Question 36

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

Question 37

Commercial banks are generally more selective in granting loans than finance companies.

Question 38

Student loan debt can be discharged by filing for bankruptcy.

Question 39

The majority of consumer loans are set up with fixed interest rates.

Question 40

GMAC is an example of a captive sales finance company.

Question 41

When simple interest is used,the stated rate of interest on single payment loans is equal to the annual percentage rate (APR).

Question 42

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.

Question 43

The add-on method is less expensive than the simple interest method when stated rates of interest are identical.

Question 44

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

Question 45

Cash value loans are available from all types of life insurance policies.

Question 46

If the add-on method is used to calculate a finance charge of $100.80 on a $1,800 loan,the amount to be repaid is $1,900.80.

Question 47

If the add-on method is used to calculate a finance charge of $150.80 on a $2,200 loan,the amount to be repaid is $2,200.

Question 48

Simple interest on an installment loan is charged only against the initial loan principal.

Question 49

Loans from whole life insurance policies are structured so that the interest rate on the loan is set at the time the loan is made.

Question 50

Rebates are almost always more cost effective than the lower interest rate offered on automobile loans.

Question 51

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.

Question 52

Life insurance loans are income tax-free.

Question 53

With the discount method,the finance charges are calculated and then added to the amount borrowed.

Question 54

When loaning money to a friend or family member,it is advisable to lend only the amount that you can afford to give away.

Question 55

Generally speaking,variable rate loans are desirable if interest rates are expected to increase over the course of the loan.

Question 56

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

Question 57

Generally,collateral for an installment loan may be seized and liquidated by the lender if the borrower has paid the loan in full.

Question 58

If a loan has a prepayment penalty,there will be an additional cost to repay the loan early.

Question 59

It is becoming increasingly frequent for longer-term installment loans to carry variable interest rates.

Question 60

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.

Question 61

A characteristic of consumer loans is that they

A) include a negotiated contract.
B) are arrived at through a formal process.
C) include a repayment schedule.
D) are used to purchase big-ticket durable goods and other items.
E) are all of these.

Question 62

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

Question 63

About one in four student loans are past due.

Question 64

If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan,the amount to be disbursed to the borrower is $2,400.

Question 65

____ loans do not have to be repaid until after you graduate from college.

A) Stafford and Perkins
B) Stafford and PLUS
C) Perkins and PLUS
D) PLUS and SLS
E) Perkins and SLS

Question 66

A personal consumer loan could be used to

A) consolidate several loans into one.
B) purchase a car.
C) cover a temporary cash shortfall.
D) buy a mobile home.
E) do all these things.

Question 67

The most popular use of consumer loans is to

A) purchase a car.
B) finance a college education.
C) finance a vacation.
D) buy a house.
E) buy furniture.

Question 68

Regarding student loans,which of the following is true?

A) They are available only for undergraduate.
B) Parents (or legal guardians) must cosign.
C) There is a limit on how much can be borrowed.
D) There is a limit on the number of loans one can have.
E) Interest does not have to be repaid.

Question 69

To qualify for a Perkins loan,you must

A) demonstrate financial need.
B) visit the financial institution.
C) apply through your parents.
D) all of the above
E) a and c only

Question 70

The purchase of credit life insurance is highly recommended by most financial planning experts.

Question 71

The best loan rates for consumer loans are usually from consumer finance companies.

Question 72

Finance companies are generally more selective in granting loans than credit unions.

Question 73

To qualify for a Stafford loan,you must

A) demonstrate financial need.
B) have a good credit rating.
C) make satisfactory academic progress.
D) all of the above
E) a and c only

Question 74

Regarding student loans,which of the following is not true?

A) They are available for both undergraduate and graduate students.
B) Applications can be filled out on the Internet.
C) There is no limit on how much can be borrowed.
D) There is no limit on the number of loans one can have.
E) Interest may be tax deductible.

Question 75

If a 12-month installment loan is prepaid at the end of 6 months,less than one half of the interest would be saved.

Question 76

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

Question 77

A consumer loan probably would not be used to

A) purchase an auto.
B) pay for college tuition.
C) consolidate several loans into one.
D) finance a special vacation.
E) buy back-to-school clothes.

Question 78

Long-term financial goals often depend on borrowing funds.The type of loan that does not fulfill the long-term goal achievement is ____ loans.

A) consumer
B) installment
C) automobile
D) mortgage
E) single payment

Question 79

If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan,the amount to be repaid is $2,400.

Question 80

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

A) personal loan.
B) single payment loan.
C) buy-down loan.
D) consolidation loan.
E) interim financing.