Deck 7: Using Consumer Loans

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

Consumer loans are most commonly used to obtain durable goods.

Question 14

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

Question 15

Installment loans are repaid in one payment.

Question 16

Student loan debt can be discharged by filing for bankruptcy.

Question 17

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

Question 18

Installment loans are repaid in monthly payments.

Question 19

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

Question 20

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

Question 21

Credit unions dominate the consumer loan market.

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

Savings and loan associations dominate the consumer loan market.

Question 28

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

Question 29

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 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

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

Question 32

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

Question 33

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

Question 34

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 35

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

Question 36

GMAC is an example of a captive finance company.

Question 37

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

Question 38

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

Question 39

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 40

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

Question 41

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 42

The average annual cost of a college education at a state school is about $33,000.

Question 43

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 44

Variable rate loans are desirable if interest rates are expected to increase over the course of the loan.

Question 45

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

Question 46

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

Question 47

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

Question 48

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 49

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

Question 50

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

Question 51

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 52

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 53

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 54

The collateral for an installment loan is seized and liquidated by the lender if the borrower has paid the loan in full.

Question 55

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 56

Rebates are almost always more cost effective than the 0percent APR loan offered on automobile loans.

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

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 62

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 63

Commercial banks generally charge lower interest rates than other lending institutions because:

A) they make shorter term loans.
B) they usually take only the best credit risks.
C) depositors require lower rates.
D) they get their funds in the open credit market.
E) they make secured loans only.

Question 64

About one in four student loans are past due.

Question 65

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 66

If your installment loan has a variable interest rate:

A) the rate will remain the same over the life of the loan.
B) the amount you borrowed will change with interest rates.
C) you cannot accurately predict the total interest you will pay on the loan.
D) you can calculate the total interest you will pay on the loan.
E) your monthly loan payment will remain the same for all the months..

Question 67

Credit unions lend money to qualified people who are:

A) employees.
B) members.
C) students.
D) policyholders.
E) stockholders.

Question 68

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 69

A personal consumer loan could be used to:

A) plan a vacation.
B) purchase a car.
C) cover a temporary cash shortfall.
D) buy a mobile home.
E) do all these things.

Question 70

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) They have to take loan only from one of the government programs.
E) Interest does not have to be paid.

Question 71

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

Question 72

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 73

A _____ is often a source of automobile financing on specific models of vehicles.

A) savings and loan association
B) credit union
C) commercial bank
D) consumer finance company
E) captive finance company

Question 74

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

Question 75

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 76

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) They can take out a loan from one or more of the government programs.
E) Interest may be tax deductible.

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

_____ 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 79

If you needed a loan to buy furniture,the lowest interest rate would usually be available from a:

A) savings and loan association.
B) pawn shop.
C) captive finance company.
D) consumer finance company.
E) credit union.

Question 80

The highest interest rate installment loans are usually made by:

A) consumer finance companies.
B) commercial banks.
C) credit unions.
D) savings and loan associations.
E) life insurance companies.