Deck 7: Using Consumer Loans

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Loans against a life insurance policy do not have to be paid back.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

From a financial planning perspective when considering a consumer loan,you should ask yourself how the purchase fits into long-term financial plans.

Question 13

529 Plans are the newest type of student loans.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

Student loans are not dischargeable in Chapter 13 bankruptcy proceedings.

Question 19

Even if you do have money,you may still be better off using an installment loan for a big-ticket purchase.

Question 20

When you take out a loan against the cash value of your life insurance policy,you're really borrowing from yourself.

Question 21

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

Question 22

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

Question 23

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

Question 24

The lender can adjust the rate on variable-rate loans only on prespecified adjustment dates.

Question 25

Single-payment loans are often used as a form of interim financing.

Question 26

Credit unions dominate the consumer loan market.

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

S&L associations are not allowed to make loans for things like cars,televisions,and appliances.

Question 32

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

Question 33

Student loans are dischargeable in Chapter 7 bankruptcy proceedings.

Question 34

Installment loans are typically repaid in one payment.

Question 35

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

Question 36

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

Question 37

Savings and loan associations dominate the consumer loan market.

Question 38

Installment loans are typically repaid in monthly payments.

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

Life insurance loans could involve a tax penalty if certain conditions are not met.

Question 45

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

Question 46

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 47

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 48

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

Question 49

Simple interest on an installment loan is calculated as Amount of Loan × Interest Rate × Term of Loan.

Question 50

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

Question 51

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

Question 52

The interest rate on a loan against your life insurance policy is set at the time the policy is taken out.

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

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

Question 55

Given the choice,it is almost always better to accept a rebate rather than 0 percent APR on an auto loan.

Question 56

GMAC is an example of a captive finance company.

Question 57

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 58

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 59

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 60

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 61

Long-term financial goals often depend on borrowing funds.The type of loan that generally does not fulfill the long-term goal achievement is ____ loans.

A)consumer
B)installment
C)automobile
D)mortgage
E)single-payment

Question 62

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 63

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 64

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 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

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

Question 67

A ____ is often a source of low-rate 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 68

If a 12-month installment loan is prepaid at the end of 6 months,one-half of the interest would be saved.

Question 69

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 70

Regarding student loans,which of the following is true?

A)They are available only for undergraduate students.
B)Parents (or legal guardians) must cosign.
C)There is a limit on how much can be borrowed wirh each loan.
D)There is a limit on the number of loans one can have.
E)Interest does not have to be repaid.

Question 71

About one in three student borrowers have a past due balance.

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

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 with each loan.
D)There is no limit on the number of loans one can have.
E)Interest may be tax deductible.

Question 74

____ 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)Only Stafford
E)Only Perkins

Question 75

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 76

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)none of these are true.

Question 77

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

Question 78

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 79

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 80

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