Deck 7: Bank Loans

Question 1

Which of the following statements about open-end loans is true?

A)An automobile loan is probably the most common type of open-end loan.
B)The longer you use the money, the more you pay.
C) The amount owed is fixed.
D) The term is fixed.

Answer 1

B

Question 2

This finance charge method takes the total finance charge, divides it by the number of months in the loan term, and assigns a higher ratio of interest to the early payments.

A)previous balance method
B)average daily balance method
C) sum-of-digits method
D) adjusted balance method

Answer 2

C

Question 3

The three general categories of loans are consumer loans, commercial loans, and mortgage loans.

Answer 3

True

Question 4

If a credit applicant has opened many new accounts recently, that is probably a sign that the applicant is very creditworthy.

Question 5

Keeping large amounts of currency on hand as protection against possible increases in customers' demand for withdrawals reduces a bank's ability to make profits from loans.

Question 6

High consumer debt is good for banks, because banks make most of their money from the interest paid on loans.

Question 7

Balance sheets for all banks are private documents seen only by bank management.

Question 8

Subprime rates are higher-than-normal interest rates offered to a less-than-perfect credit applicant.

Question 9

One consequence of credit overextension is a ruined credit rating.

Question 10

Which of the following elements of the FICO credit-scoring system carries the most weight?

A)types of credit
B)payment history
C) length of credit history
D) new credit

Question 11

Which of the following shows the steps of the credit-approval process in proper order?

A)underwriting, application, documentation, processing, closing, funding
B)documentation, application, underwriting, closing, processing, funding
C) application, processing, documentation, underwriting, closing, funding
D) application, documentation, processing, underwriting, closing, funding

Question 12

Documentation of most credit problems stays in a consumer's file for at least

A)six months.
B)one year.
C) five years.
D) seven years.

Question 13

Paying off a loan early saves the consumer no money if the sum-of-digits method has been used to compute finance charges.

Question 14

Which of the following is NOT an example of an account service fee?

A)certified check fee
B)fee for returned checks
C) financing fee
D) verbal funds transfer fee

Question 15

The term moral hazard means that consumers with poor moral character are a high credit risk.

Question 16

A legal claim a lender has on property to secure a debt is called

A)a lien.
B)collateral.
C) an acceleration clause.
D) a garnishment.

Question 17

Secured loans are sometimes called signature loans.

Question 18

Personal loans do not require the borrower to state a specific purpose for the funds.

Question 19

All of the following are considered installment loans except

A)automobile loans.
B)home equity loans.
C) education loans.
D) lines of credit.

Question 20

A lending policy is a written statement of the guidelines and standards a bank must follow in making credit decisions.

Question 21

The risk that a bank will have to sell its assets at a loss to meet its cash demands is called

A)credit risk.
B)market risk.
C) liquidity risk.
D) security risk.

Question 22

____________________ refers to using deposits to generate revenue by putting deposits to work via loans.

Question 23

Services provided by banks that generate revenue but that are not included on their balance sheets are called ____________________.

Question 24

The concept that the borrowers who are most willing to accept a high interest rate are the same borrowers who are most likely to default on their loans is called

A)moral hazard.
B)captive borrowers.
C) adverse selection.
D) asset transformation.

Question 25

Dominic has a balance of $1,460.20 on his credit card. The minimum payment requirement is 6%, and the card's APR is 18%. If he makes the minimum payment, how much of it will go toward reducing the balance? Round your answer to the nearest hundredth.

Question 26

When banks refuse to provide a loan, or when they lend less than the customer requested, they are engaging in ____________________.

Question 27

A(n) ____________________ loan is a loan for which the amount of the payments, the rate of interest, and the number of payments are fixed.

Question 28

Markita has a balance of $3,400 on her credit card. The minimum payment requirement is 5%, and the card's APR is 17%. If she makes the minimum payment, how much of it will go toward paying the interest? Round your answer to the nearest hundredth.

Question 29

The annual ____________________ rate is the amount of interest charge on a loan principal expressed as a yearly figure.

Question 30

Becky has a balance of $2,000 on her credit card. The minimum payment requirement is 4%. How much is the minimum payment?

Question 31

The process of reviewing a loan for soundness is called ____________________.

Question 32

A(n) ____________________ period is an amount of time you have to pay a credit card bill in full and avoid any finance charges.

Question 33

Suppose you borrow $1,000 and pay the loan back in 12 equal payments of $95.50. What is the finance charge for this loan?

Question 34

The amount you borrow in a loan is called the ____________________.

Question 35

____________________ are records of all who have requested a copy of a credit report within the last year.

Question 36

A home equity loan is essentially a second ____________________.

Question 37

What are home equity loans based upon?

Question 38

What is a finance charge?

Question 39

Suppose you borrow $5,000 and make 12 equal payments to retire the debt. If the finance charge for the loan is $400, what will the amount of each monthly payment be?

Question 40

Specific property that secures a loan is called ____________________.

Question 41

For a bank, what is liquidity? What are some loan factors that affect a lending bank's liquidity?

Question 42

What is a consumer reporting agency?

Question 43

How can a bank limit credit risk?

Question 44

Explain what it means to be a captive borrower.

Question 45

What occurs during a loan closing?

Question 46

What does securitization mean?

Question 47

Explain the difference between secured and unsecured loans.

Question 48

What are the "three Cs" that underwriters use to evaluate loan applications? Briefly define them.

Question 49

What is a line of credit?

Question 50

What is an acceleration clause?