Question 1

Which of the following regulations requires lending institutions to delineate the trade territory it plans to serve and to offer all of its services without discrimination to all the residents in that particular trade territory?

Accepted Answer

The Community Reinvestment Act requires lending institutions to serve the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, and prohibits discrimination based on location or income level. It requires lenders to delineate their trade territories and offer all services to all residents in those territories.

Question 2

Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4,500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10 percent of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8 percent for the loan and require monthly payments over the next 4 years.
-If Mark makes the minimum down payment on the car,what is the amount of the loan that Mark will receive?

Accepted Answer

The purchase price is $21,000, and the trade-in is worth $4,500, so the net price is $21,000 - $4,500 = $16,500. Mark needs to put down 10% of $16,500, which is $1,650. Therefore, the loan amount is $16,500 - $1,650 = $14,850.

Question 3

A bank is considering making a loan to Neville Langdon.Neville has bounced three checks in the last year and already has $10,000 on a credit card and an automobile loan with a large balance due.What aspect of evaluating a consumer loan application is this fact concerned with?

Accepted Answer

This fact is concerned with the pyramiding of debt, which refers to a situation where a borrower takes on more debt than they can handle, leading to a cycle of borrowing to pay off previous debts. This can be a red flag for lenders as it increases the risk of default on the loan.

Question 4

Alexis Downs uses her credit card to buy furniture but pays off the credit card at the end of the month before she incurs any interest costs.How is Alexis using her credit card?

Accepted Answer

Alexis is using her credit card as a noninstallment loan since she pays off the balance in full at the end of the month and does not incur any interest charges.

Question 5

A bank is considering making a loan to Sean Finnigan.Sean owns his own home and has lived there for the past four years.What aspect of evaluating a consumer loan application is this fact most concerned with?

Accepted Answer

The fact that Sean owns his own home and has lived there for the past four years is most concerned with evaluating his employment and residential stability. It shows that he has been at the same residence for a significant amount of time and has been able to maintain a certain level of income stability to afford and maintain a home. This gives the bank confidence in his ability to repay the loan.

Question 6

A bank is considering making a loan to Ron Weasley.Ron has a gross salary per month of $4,000 but has take-home pay of $2,800 per month.What aspect of evaluating a consumer loan application is this fact most concerned with?

Accepted Answer

The fact that Ron Weasley has a gross monthly salary of $4,000 but a take-home pay of only $2,800 is most concerned with his income level. This information is important for evaluating his ability to repay the loan, as it provides insight into his disposable income and overall financial stability.

Question 7

Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4,500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10 percent of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8 percent for the loan and require monthly payments over the next 4 years.
-What is the size of Mark's monthly payments if he makes the minimum down payment on the car?

Accepted Answer

The down payment that Mark needs to make is 10% of the purchase price after the trade-in value is considered.
Purchase price after trade-in = $21,000 - $4,500 = $16,500
Down payment = 10% of $16,500 = $1,650

So, Mark needs to take a loan of $16,500 - $1,650 = $14,850
Using an online loan calculator or a financial calculator, we can find that the monthly payment on this loan is $362.53. Therefore, the answer is A.

Question 8

A bank is considering making a loan to Sam Snape.Mr.Snape has $1,000 in the bank right now but generally keeps a balance of $4,500 most of the year.What aspect of evaluating a consumer loan application is this fact concerned with?

Accepted Answer

This fact is concerned with the deposit balance aspect of evaluating a consumer loan application. It shows the bank how much money Mr. Snape typically keeps in his account, which can indicate his ability to repay the loan.

Question 9

A bank customer is granted credit for a $2,000 loan at 10 percent to be repaid in 12 equal installments.If the loan is a discount loan,what is the monthly payment?

Accepted Answer

In a discount loan, the interest is deducted from the principal before the loan is disbursed. The interest on a $2,000 loan at 10 percent is $200 (10% of $2,000). Thus, the customer receives $1,800 ($2,000 - $200). However, the customer repays the original loan amount, which is $2,000, in 12 equal installments. Therefore, the monthly payment is $2,000 divided by 12, which equals $166.67.

Question 10

Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4,500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10 percent of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8 percent for the loan and require monthly payments over the next 4 years.
-If Mark's monthly payments are 362.53 per month,what is the total finance charge if he takes the full 4 years to pay off the loan?

Accepted Answer

First, we need to calculate the down payment Mark will need to make. The purchase price of the car after the trade-in value is subtracted is:

$21,000 - $4,500 = $16,500

Mark will need to put down 10% of this amount, or:

$16,500 x 0.10 = $1,650

This means the amount Mark will finance is:

$16,500 - $1,650 = $14,850

To calculate the total finance charge, we need to take the monthly payment and multiply it by the number of months Mark will be making payments:

$362.53 x 48 = $17,401.44

This is the total amount Mark will pay over the course of the loan. To calculate the finance charge, we need to subtract the amount borrowed from this total:

$17,401.44 - $14,850 = $2,551.44

Rounding up to the nearest cent, the total finance charge is $2,551.53. Therefore, the answer is D.

Question 11

Credit reports provided by credit bureaus provide lenders with:

Accepted Answer

Credit reports provided by credit bureaus provide lenders with all of the options listed. They include personal identifying data, personal credit histories derived from data submitted by lenders, public information that may bear on a borrower's honesty and stability, and the volume of inquiries from lenders about the borrower.

Question 12

A bank is considering making a loan to Alice Granger.The bank is looking at her credit report from Equifax and also examining the reason Alice has put on the loan application for needing the loan.According to the text,what aspect of evaluating a consumer loan application is the bank looking at?

Accepted Answer

The text states that the bank is examining the reason Alice has put on the loan application for needing the loan, which falls under the character and purpose aspect of evaluating a consumer loan application. The other options listed are important factors in evaluating loan applications, but do not specifically relate to the aspect being asked about in this question.

Question 13

Bill Wells uses his Discover card to buy new furniture for his apartment.The interest rate on this card is 18 percent and the minimum payment that is due is $100.Which of the following categories will this loan fall into?

Accepted Answer

This loan falls into the category of a revolving line of credit because it is a type of credit that allows the borrower to make purchases up to a certain credit limit and make payments over time. The interest and minimum payment due will vary depending on the balance owed.

Question 14

The most profitable credit card customers for a bank are those that:

Accepted Answer

The most profitable credit card customers for a bank are those who use their credit card as a source of installment loans. This is because banks earn interest from the balances that these customers carry over from month to month, which is typically higher than the income they would earn from transaction fees alone.

Question 15

Which of the following is a challenge in making a consumer loan?

Accepted Answer

Consumers may not have audited financial statements, but they also may not disclose all relevant information that could affect their ability to pay back the loan. This makes it harder for lenders to accurately assess the risks of lending to them.

Question 16

The Equal Credit Opportunity Act requires that:

Accepted Answer

The Equal Credit Opportunity Act requires that a bank give reasons in writing for denying a loan. This is to prevent discrimination on the basis of race, gender, age, religion, or other factors not related to creditworthiness.

Question 17

A bank is considering making a loan to John Carter.John is a commissioned sales broker.Some months he earns as much as $10,000 and in other months he earns virtually nothing.Which aspect of evaluating a consumer loan would this be concerned with?

Accepted Answer

Evaluating John's income level is important in determining his ability to repay the loan, as his income is variable and unpredictable. The bank will want to ensure he has the means to make regular payments on the loan, even in months when his income is low. The other options listed are not directly relevant to this aspect of evaluating a consumer loan.

Question 18

Jerry McGuire uses his Visa card to buy a new washer and dryer and a new refrigerator for his home.He plans on paying off the credit card over the next two years.How is Jerry using his credit card?

Accepted Answer

Jerry is using his credit card as an installment loan because he plans on paying it off over the next two years, which indicates that he will make regular payments towards the balance. An installment loan is a type of loan that has a fixed repayment schedule, where the borrower pays back the loan in regular installments over a set period of time.

Question 19

Donna Carlon is using her plastic card to buy groceries.The money is taken from her checking account immediately to pay for her groceries.How is Donna using her card?

Accepted Answer

Donna is using her plastic card to access her checking account and the money is immediately deducted from her account to pay for her groceries. This is consistent with the use of a debit card.

Question 20

Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4,500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10 percent of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8 percent for the loan and require monthly payments over the next 4 years.
-What is the minimum down payment that Mark must make?

Accepted Answer

Mark needs to put down 10% of the purchase price after subtracting the trade-in value. The trade-in value is $4,500, which means the purchase price after the trade-in is $21,000 - $4,500 = $16,500. 10% of $16,500 is $1,650, so that is the minimum down payment that Mark must make. Therefore, the correct answer is option C.

Quiz 18: Consumer Loans, Credit Cards, and Real Estate Lending