Deck 6: Choosing a Source of Credit: The Costs of Credit Alternatives

Question 1

It takes considerably longer to repay an interest only line of credit than it takes to repay a traditional consumer installment loan.

Answer 1

True

Question 2

Lines of credit usually charge a variable interest rate, tied to the lender's prime rate.

Answer 2

True

Question 3

With a larger down payment, you'll probably pay a higher interest rate on your loan.

Answer 3

False

Question 4

After you have selected a product, you should buy it immediately before the store runs out of it.

Question 5

Two key concepts that you should keep in mind when borrowing are the finance charge and the annual percentage rate.

Question 6

Credit unions rarely offer the same range of consumer loans that banks and other financial institutions do.

Question 7

The most expensive loans available are provided by finance companies, retailers, and banks through credit cards.

Question 8

The least expensive loans are available from car dealers, appliance stores, department stores.

Question 9

Credit costs usually do not vary.

Question 10

A variable interest rate is based on fluctuating rates in the banking system, such as the prime rate.

Question 11

The Annual Percentage Rate is the percentage cost of credit on a yearly basis.

Question 12

You may be able to borrow at a lower interest rate if you accept a shorter-term loan.

Question 13

Creditors use the same system to calculate the balance on which they assess finance charges.

Question 14

You can often obtain medium-priced loans from banks, trust companies, and credit unions.

Question 15

The shorter the term of the loan the greater the amount of interest charges that must be paid.

Question 16

You want to borrow $100 for a year at an annual rate of 8% compounded semi-annually.The effective annual rate of the loan is 8.04 percent.

Question 17

The disadvantage of using an interest only line of credit is the considerably longer time it takes to repay the loan in comparison to a traditional consumer installment loan.

Question 18

Using parents or family members as lenders is the most risky type of loan method.

Question 19

Credit card co-branding has become popular with banks and industries.

Question 20

The best way to pay off credit is to follow the minimum payment amount stated on your bill.

Question 21

There is never a charge for any service provided by a credit counsellor.

Question 22

An increasing number of bankruptcy filers are well-educated middle-class baby boomers.

Question 23

Over-indebtedness is one of the nation's main family financial problems.

Question 24

If you are having trouble paying your bills, turn to a company that claims to offer assistance in solving debt problems.

Question 25

If creditors add finance charges after subtracting payments made during the billing period, this is called the previous balance method.

Question 26

The most commonly purchased type of credit insurance is credit life insurance.

Question 27

The consumer proposal is a maximum five-year plan for paying creditors all or apportion of the total debt owed.

Question 28

If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month.

Question 29

Paying only the minimum balance each month on credit card bills is a signal of potential debt problems.

Question 30

Inflation increases the purchasing power of money.

Question 31

Increasingly, the bankruptcy debtor is likely to be female.

Question 32

The consumer credit laws require that an advance notice be given before repossessing a car.

Question 33

The fairest method of calculating interest is the average daily balance method.

Question 34

Most borrowers should buy credit life insurance.

Question 35

Banks often encourage you to make the maximum payment.

Question 36

Governmental non-profit counseling services are usually free or at low cost.

Question 37

Credit disability insurance can be used when the borrower is unable to pay back a loan in a case of illness or injury.

Question 38

Credit life insurance provides for the repayment of the loan if the borrower dies.

Question 39

The fairest method of calculating the interest is the adjusted balance method.

Question 40

Anyone overburdened by credit obligations can phone, write, or visit a credit counsellor.

Question 41

The longer the term of the loan the greater the amount of interest charges that must be paid.

Question 42

Your only choice in declaring personal bankruptcy is through an assignment in bankruptcy.

Question 43

Inflation decreases the purchasing power of money.

Question 44

If you declare bankruptcy, you, must continue to pay any alimony, child support, debts incurred through fraud and court costs.

Question 45

A float refers to:

A)an interest charged for only a few days.
B)something one enjoys in a parade.
C)a home equity loan.
D)a period when no interest is charged.
E)a lump-sum loan from a credit union.

Question 46

Which of the following financing methods provides a float period?

A)installment loan
B)lump-sum loan
C)credit card
D)home equity line of credit
E)a loan from a relative

Question 47

Obtaining credit may be easier for people who file a bankruptcy rather than a consumer proposal.

Question 48

Credit unions often offer the same range of consumer loans that banks and other financial institutions do.

Question 49

You have two choices in declaring personal bankruptcy: A consumer proposal or declaration through an assignment in bankruptcy.

Question 50

There are no costs involved in filing for a bankruptcy or submitting a consumer proposal.

Question 51

In a straight bankruptcy many, but not all, debts are forgiven.

Question 52

Both consumer proposals and declarations of insolvency through an assignment in bankruptcy are considered an easy way out of debt.

Question 53

Consumer credit counselling services are often offered by Universities.

Question 54

During the last decade, the personal bankruptcy rate has increased almost 8 percent annually.

Question 55

Obtaining credit may be easier for people who file a consumer proposal rather than a bankruptcy.

Question 56

The most inexpensive loans available are provided by finance companies, retailers, and banks through credit cards.

Question 57

For some debtors, bankruptcy has become an acceptable tool of credit management.

Question 58

In financial institutions, the sources of credit:

A)come in all shapes and sizes.
B)play an important role in our economy.
C)are typically short term
D)A and B are correct
E)A, B and C are correct

Question 59

By evaluating your credit options, you can

A)reduce your finance charges.
B)reconsider your decision to borrow money.
C)discover a less expensive type of loan.
D)find a lender that charges a lower rate.
E)reduce your finance charges, reconsider your decision to borrow money, discover a less expensive type of loan, and find a lender that charges a lower rate.

Question 60

If you declare bankruptcy, you do not have to pay alimony, child support, or educational loans.

Question 61

What is the EAR for a $100 loan when the interest is compounded monthly and the stated annual interest rate is 7 percent?

A)7.0 percent
B)8.0 percent
C)7.23 percent
D)12.0 percent
E)16.0 percent

Question 62

If you default on your automobile loan,

A)an advance notice to you is required before your car is repossessed.
B)no advance notice is required before repossession.
C)the federal consumer credit laws give you protection.
D)you don't have to pay the full balance due on the loan.
E)the creditor pays the towing and storage costs.

Question 63

Compounding the quarterly percentage rate four times a year is equivalent to:

A)the annual percentage rate (APR) quoted by a financial institution.
B)the annual percentage rate (APR) compounded semi-annually.
C)the effective annual rate (EAR) annually.
D)the effective annual rate (EAR) semi-annually
E)the effective annual rate (EAR) quarterly.

Question 64

According to consumer affairs experts, one of the nation's main family financial problems is

A)that families don't prepare their budgets.
B)over-indebtedness.
C)over consumption.
D)buying too much insurance.
E)unemployment.

Question 65

What is monthly payment for a $25,000 amortized loan to purchase a car payable over 5 years at an annual interest rate of 12%?

A)$200
B)$333
C)$445
D)$556
E)$565

Question 66

The most commonly purchased type of credit insurance is

A)credit life insurance.
B)credit accident insurance.
C)credit health insurance.
D)credit property insurance.
E)credit disability insurance.

Question 67

If a bank charges you interest up front then this loan is called a _________ loan

A)compounded.
B)simple interest.
C)discount.
D)add-on.
E)installment.

Question 68

Which of the following offer the least expensive loan?

A)finance companies
B)banks
C)savings and loan associations
D)parents or family members
E)loan sharks

Question 69

Which of the following are signs of debt problems?

A)foreclosure proceedings.
B)overdue payments.
C)approaching credit limits.
D)A and B are correct.
E)A, B and C are correct.

Question 70

If creditors add finance charges after subtracting payments made during the billing period, this is called the

A)adjusted balance method.
B)discount method.
C)previous balance method.
D)APR method
E)average daily balance method.

Question 71

You can often obtain medium-priced loans from

A)parents or family members.
B)American Express.
C)commercial banks and credit unions.
D)finance companies.
E)retailers.

Question 72

If creditors give you no credit for payments made during the billing period, this is called the

A)APR method.
B)discount method.
C)previous balance method.
D)adjusted balance method.
E)average daily balance method.

Question 73

Which type of credit insurance repays your debt in the event of a loss of income due to illness or injury?

A)credit life insurance
B)credit accident and health insurance
C)credit property insurance
D)credit casualty insurance
E)credit debit insurance

Question 74

Which of the following tend to be expensive loans?

A)retailers
B)banks
C)credit unions
D)family members
E)trust companies

Question 75

Most people who are unable to manage their debts are:

A)criminals who take advantage of creditors.
B)living in the poverty-stricken areas.
C)expected to declare Chapter 11 bankruptcy.
D)mostly dishonest people.
E)mostly honest people.

Question 76

Membership in credit unions has been

A)growing steadily.
B)declining gradually.
C)static.
D)restricted by the Tax Act.
E)restricted by provincial laws.

Question 77

Which of the following may indicate potential debt problems?

A)paying only the minimum balance each month.
B)always borrowing to make it to next payday.
C)your wages have been garnished to pay for debt.
D)your utility company cuts off service because your bills are unpaid.
E)paying only the minimum balance each month, always borrowing to make it to next payday, your wages have been garnished to pay for debt, and your utility company cuts off service because your bills are unpaid.

Question 78

If you borrow $100 at 12 percent annual interest and repay it in one lump sum at the end of one year, you will have to pay

A)$12.
B)$100.
C)$112.
D)$1,200.
E)$8.33.

Question 79

If you have trouble paying your bills,

A)take a personal finance course.
B)turn to a company that claims to offer assistance in solving debt problems.
C)check with your local Better Business Bureau for help.
D)seek assistance from a collection agency.
E)try to solve the problem with your creditor.

Question 80

The interest rate on a collateralized loan is relatively low, but one of the disadvantages of such loans is that

A)the loan must be repaid in a short period of time.
B)the assets used as collateral are tied up until the loan has been repaid.
C)the loan is difficult to obtain.
D)commercial banks do not make such loans.
E)you ruin your credit rating.