Deck 7: Using Consumer Loans

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Consumer loans are most commonly used to obtain durable goods.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

Savings and loan associations dominate the consumer loan market.

Question 23

Installment loans are typically repaid in one payment.

Question 24

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

Question 25

GMAC is an example of a captive sales finance company.

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

Student loan debt can be discharged by filing for bankruptcy.

Question 36

Installment loans are typically repaid in monthly payments.

Question 37

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 38

Credit unions dominate the consumer loan market.

Question 39

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

Question 40

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

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

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

Question 43

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 44

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

Question 45

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 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

Life insurance loans are income tax-free.

Question 52

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 53

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

Question 56

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 57

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

Question 58

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

Question 59

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

Question 60

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 61

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 62

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

Question 63

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

Question 64

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 65

About one in four student loans are past due.

Question 66

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.

Question 67

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 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

____ 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 70

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

Question 71

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

Question 72

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 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

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 75

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 76

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 77

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 78

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 79

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 80

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