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

Question 1

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.

Answer 1

discount.

Question 2

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.

Answer 2

adjusted balance method.

Question 3

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.

Answer 3

A and B are correct.

Question 4

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 5

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 6

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 7

Which of the following tend to be expensive loans?

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

Question 8

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 9

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 10

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 11

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 12

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 13

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 14

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 15

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 16

Compounding the annual percentage rate (APR) 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 17

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 18

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.

Question 19

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 20

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 21

Credit counselors will aid families by

A) setting up a budget for them.
B) paying off their loans.
C) providing free basic necessities.
D) providing one month free shelter.
E) relocating them in less expensive areas.

Question 22

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 23

Which of the following allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time?

A) Assignment in bankruptcy
B) Frequent payment plan
C) Consumer proposal
D) A and B are correct
E) A, B and C are correct

Question 24

In a bankruptcy, a trustee

A) is required to draw up a petition listing all of your assets and liabilities.
B) will have to pay a filing fee.
C) is appointed by a 'banker'
D) seeks absolution from alimony and child support payments.
E) repays educational loans first.

Question 25

What effective rate of interest is being charged when the quoted APR is 6%, compounded semi-annually?

A) 6.00%
B) 6.09%
C) 6.17%
D) 6.18%
E) 6.50%

Question 26

According to the current Canada Student Grants Program, the Government of Canada will provide up to a maximum of _______ in loans per week of study to eligible students

A) $100
B) $210.
C) $400.
D) $600
E) $1,000.

Question 27

Identify the correct statements.
I. Shortening the term of a loan will reduce total interest charges.
II. The interest component of each installment loan payment rises over time.
III. A credit card holder who pays the minimum balance each month will remain in good standing.

A) I and II, only
B) II and III, only
C) I and III, only
D) I, II and III
E) I only

Question 28

Student loans to finance education beyond high school

A) have rates that are subsidized by the Government of Canada
B) charge interest rates equal to commercial rates
C) must be repaid but interest is not charged if repaid in a timely manner
D) can be cancelled if you were dissatisfied with your education
E) are available to all full-and part-time post-secondary students regardless of financial need

Question 29

Consumer credit counseling services are basically concerned with

A) lending the money to destitute people.
B) giving debtors food and shelter.
C) helping destitute debtors to relocate in less expensive areas.
D) preventing and solving the problems related to credit overextension.
E) getting you more credit

Question 30

By current Canadian law, a lender in Canada can legally charge up to _________ per annum

A) 10%
B) 22%
C) 28%
D) 60%
E) there is no limit

Question 31

If you borrow $200 at 8 percent annual interest and repay it in one lump sum at the end of one year, you will have to pay

A) $16.
B) $200.
C) $216.
D) $208
E) $8.

Question 32

Government of Canada student loans

A) are available to all full-time and part-time post-secondary students regardless of financial need
B) are offered only in Ontario and Quebec
C) are not required to be repaid
D) are the same as student grants
E) program is called the Canada Student Loans Program

Question 33

Non-profit credit counseling services are sometimes provided by

A) universities.
B) military bases.
C) credit unions.
D) provincial and federal authorities.
E) All of them may provide such services.

Question 34

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 35

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 36

What is the EAR for a $100 loan when the interest is compounded monthly and the stated annual interest rate is 6.00 percent?

A) 6.00 percent
B) 6.39 percent
C) 6.17 percent
D) 7.52 percent
E) 8.21 percent

Question 37

Student loans to finance education beyond high school

A) are available from the Government of Canada
B) charge lower interest rates than commercial rates
C) must be repaid with interest, just like car loans and mortgages
D) cannot be cancelled because you were dissatisfied with your education
E) all of the choices are correct

Question 38

A maximum 5-year plan for paying creditors all or a portion of outstanding debt is referred to as a consumer ________________________.

A) bankruptcy
B) proposal
C) consolidation
D) counseling
E) Assurance

Question 39

In order to minimize complications, all loans to and from family members should

A) be in writing
B) state the interest rate, if there is an interest rate
C) include a repayment schedule
D) include the final payment date
E) all of these should be included

Question 40

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 41

Which of the following are signs of debt problems?

A) you continually go over your spending limit
B) use credit cards as a necessity rather than as a convenience
C) always borrowing money to make it from one payday to the next
D) A and B are correct.
E) A, B and C are correct.

Question 42

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

Question 43

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

Question 44

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 45

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

Question 46

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

Question 47

Credit costs usually do not vary.

Question 48

What is monthly payment for a $20,000 amortized loan to purchase a car payable over 3 years at an annual interest rate of 6%?

A) $387
B) $556
C) $578
D) $608
E) $588

Question 49

According to many consumer organizations

A) credit life insurance is the most important to have.
B) credit accident insurance is most important to have.
C) credit health insurance is the most important to have.
D) credit life insurance is not needed by most borrowers.
E) credit disability insurance is most important to have.

Question 50

What is the EAR for a $100 loan when the interest is compounded monthly and the stated annual interest rate is 5.00 percent?

A) 5.00 percent
B) 5.06 percent
C) 5.12 percent
D) 5.52 percent
E) 5.92 percent

Question 51

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

Question 52

To be eligible for the insolvency protection application called a consumer proposal

A) you must be solvent and more than $200,000 in debt
B) you must be insolvent and more than $200,000 in debt
C) you must be insolvent and less than $75,000 in debt, excluding a mortgage on your principal residence
D) you must be solvent and less than $100,000 in debt
E) you must be insolvent and more than $100,000 in debt, excluding a mortgage on your principal residence

Question 53

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

Question 54

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

Question 55

Which of the following are signs of debt problems?

A) continually go over your spending limit
B) use credit cards as a necessity rather than as a convenience
C) always borrowing money to make it from one payday to the next
D) you pay only interest or service charges monthly and do not reduce your total debt
E) all these statements are signs of debt problems.

Question 56

Consolidation loans

A) have the advantage of a single interest rate on the full amount of your selected debts
B) usually have shorter terms than your initial debts
C) usually have lower interest rates because you are considered to be a lower risk for the lender
D) are best used for low or no interest debts
E) usually pay less overall when you extend the term of payment

Question 57

What is monthly payment for a $25,000 amortized loan to purchase a car payable over 5 years at an annual interest rate of 6%?

A) $416
B) $432
C) $483
D) $556
E) $565

Question 58

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

Question 59

By evaluating your credit options, you can reduce your finance charges.

Question 60

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

Question 61

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

Question 62

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

Question 63

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

Question 64

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

Question 65

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

Question 66

Banks often encourage you to make the maximum payment.

Question 67

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

Question 68

Most borrowers should buy credit life insurance.

Question 69

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 70

Inflation increases the purchasing power of money.

Question 71

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

Question 72

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

Question 73

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

Question 74

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

Question 75

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

Question 76

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

Question 77

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

Question 78

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

Question 79

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 80

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