Deck 9: Personal Loans

Question 1

The monthly payment for a loan is dependent only on the size of the loan and the interest rate.

Answer 1

False

Question 2

Debt consolidation loans can be used to

A) lower total payments.
B) replace higher interest rate debt.
C) get points on a credit card.
D) Both A and B are correct.

Answer 2

Both A and B are correct.

Question 3

When borrowing money from a family member or a friend, the loan agreement should be in writing and signed by all parties to avoid any possible misinterpretations.

Answer 3

True

Question 4

All of the following provide personal loans, except

A) commercial banks.
B) insurance companies.
C) finance companies.
D) credit unions.

Question 5

Longer maturities for loans result in lower monthly payments and therefore make it easier to cover payments each month.

Question 6

Personal loans from family members or friends

A) are not good sources of financing.
B) are more expensive than loans from other sources.
C) should have a loan agreement in writing to avoid problems later on.
D) are not desirable from the lender's point of view.

Question 7

A personal loan is different from a credit card in that it is normally used to finance one large purchase.

Question 8

Personal loans include which of the following?

A) Car loans
B) Credit card advance payments
C) Home equity loans
D) Both A and C are correct

Question 9

When applying for a personal loan, you will be required to fill out a loan application but you will seldom need a personal balance sheet or a personal cash flow statement.

Question 10

If a loan is cosigned and the borrower defaults, the lender has the right to sue the cosigner or try to seize the cosigner's assets just as if that person were the borrower.

Question 11

In securing personal loans from family members or friends, the loan agreement should be verbal or just consist of a "gentlemen's understanding."

Question 12

On an amortization schedule, more interest and less principal is paid each month as the loan matures.

Question 13

In determining the amount of your loan, you should ask for about 20% more than you need in order to give yourself financial flexibility in the future.

Question 14

Which of the following is the most common source of financing for personal loans?

A) Family and friends
B) Financial institutions
C) Peer-to-peer lending
D) Sales finance companies

Question 15

In general, you will receive more favorable terms on a secured loan than on an unsecured loan.

Question 16

The most common source of financing for a personal loan is from a financial institution.

Question 17

A personal loan is different from a credit card in all of the following, except it

A) is normally used to finance one large purchase.
B) has a specific repayment schedule.
C) can be used only once.
D) has a longer grace period.

Question 18

For which of the following items would a personal loan be a better option than a credit card for a college student?

A) Car maintenance expense
B) Tuition and dorm fees
C) Trips home for the holidays
D) Tickets to sporting events

Question 19

Even an unsecured personal loan should be backed by collateral.

Question 20

Collateral is defined as assets of the lender that back a secured loan in the event of default.

Question 21

If you agree to allow the lender to take your computer in the event you fail to make payments, the loan is which of the following?

A) Amortized
B) Unsecured
C) Secured
D) Interest free

Question 22

The loan contract identifies all of the following, except

A) loan officer.
B) maturity.
C) loan repayment schedule.
D) collateral.

Question 23

The document that specifies the term of the loan as agreed to by the borrower and lender is called the

A) loan repayment schedule.
B) loan contract.
C) loan application.
D) terms of agreement.

Question 24

You could reduce the size of your monthly loan payments by

A) agreeing to a higher interest rate.
B) borrowing the same amount of money but for a shorter period of time.
C) borrowing more money initially for the same period of time.
D) lengthening the maturity of the loan.

Question 25

The personal loan process with a financial institution requires all of the following, except

A) filling out an application.
B) sitting through an interview.
C) negotiating the loan contract.
D) negotiating the interest rate.

Question 26

The ________ the maturity of a loan, the ________ the payments.

A) longer; smaller
B) shorter; larger
C) shorter; smaller
D) Both A and B are correct

Question 27

The size of the monthly payment on a loan is dependent on all of the , except the

A) principal borrowed.
B) interest rate.
C) borrower's age.
D) maturity.

Question 28

Which of the following would probably not be required when applying for a personal loan?

A) A personal résumé
B) A personal balance sheet
C) A personal cash flow statement
D) A loan application

Question 29

Which of the following items must you provide when applying for a loan in order to prove you have collateral to back your loan?

A) Personal cash flow statement
B) Paycheck stub
C) Personal balance sheet
D) A and C are correct

Question 30

Which kind of loan generally charges the lowest interest rate?

A) Unsecured loan
B) Secured loan
C) Cash advance
D) Vacation loan

Question 31

Having a longer-term loan

A) increases the interest and therefore increases the cost of your loan.
B) makes your monthly payments larger.
C) is almost always the best alternative for credit users.
D) gives you access to additional sources of financing.

Question 32

Collateral

A) gives the lender additional recourse if the payments are not made.
B) is used on unsecured loans.
C) increases the interest rate on loans.
D) is required on all loans.

Question 33

Which of the following is not usually used as collateral for a loan?

A) A boat
B) Clothing
C) A car
D) A house

Question 34

In a loan repayment schedule, the term amortized refers to

A) the method by which interest is calculated.
B) the repayment of the principal and interest through a series of equal payments.
C) the life of the loan.
D) assets used to back the loan.

Question 35

Regarding the amount of money borrowed on a loan, all of the following are true, except

A) the amount is based on how much the lender believes you can pay back in the future.
B) you should borrow slightly more than you need to cover future inflation.
C) you should only borrow the amount you need.
D) you will have to pay interest on the entire amount.

Question 36

Making extra payments on a loan does all of the following, except

A) reduces the total amount of interest paid.
B) gives you extra income for living expenses.
C) reduces the maturity of the loan.
D) helps assure your good credit rating.

Question 37

What is the correct chronological order of the items listed below?

A) Good credit history, loan contract, repayment schedule, loan application
B) Good credit history, loan application, loan contract, repayment schedule
C) Good credit history, repayment schedule, loan application, loan contract
D) Good credit history, repayment schedule, loan contract, loan application

Question 38

Which of the following is not included in the loan contract?

A) Credit score
B) Amount of the loan
C) Interest rate
D) Loan repayment schedule

Question 39

All of the following are true regarding a cosigner on an account, except

A) the cosigner is responsible for any unpaid balance.
B) the lender may not seize the assets of the cosigner.
C) cosigning an account is a big liability and should be taken seriously.
D) cosigning on a loan can restrict the amount that the cosigner is able to borrow.

Question 40

Over the life of a loan, the payment to principal ________ and the portion to interest expense ________.

A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases

Question 41

If you double the principal repayment called for on your car loan each month without doubling the interest payment, you will

A) reduce the term of the loan by half.
B) reduce the amount of interest you pay by about 30%.
C) not have much effect since you are not also doubling the interest paid monthly.
D) Both A and B are correct.

Question 42

You obtain a loan of $3,000 to be repaid over one year. Assume you are charged 12% interest based on the add-on method. You monthly payments would be

A) $280.
B) $300.
C) $360.
D) $270.

Question 43

Use the following two columns of items to answer the matching questions below:
loan contract

A)disclosure of information including a balance sheet and cash flow statement
B)a contract that specifies the terms of the loan agreed to by the borrower and lender
C)loan that is not backed by collateral
D)life or duration of a loan

Question 44

Which of the following methods of calculating interest is the most expensive?

A) Annual percentage rate or APR
B) Simple interest
C) Add-on interest
D) Sum of the digits

Question 45

You could reduce the interest rate you are paying on loans by

A) refinancing to a secured loan.
B) paying off credit card debt with a home equity loan.
C) refinancing to a shorter-term loan.
D) A, B, and C are all viable possibilities.

Question 46

List four components of a loan contract

Question 47

The Truth-in-Lending Act (1969) requires which of the following?

A) Adherence to the interest rates established by the Federal Reserve
B) Specifying loan rate standardization
C) Disclosure of only interest charges but no other fee
D) All of the above

Question 48

The APR measures the finance expenses (including interest and all other expenses) on a loan on a(n)

A) quarterly basis.
B) annualized basis.
C) monthly basis.
D) daily basis.

Question 49

When the borrower and the lender have agreed to the specific terms of a loan, these will be included in the ________.

Question 50

Use the following two columns of items to answer the matching questions below:
maturity

A)disclosure of information including a balance sheet and cash flow statement
B)a contract that specifies the terms of the loan agreed to by the borrower and lender
C)loan that is not backed by collateral
D)life or duration of a loan

Question 51

All of the following are true of peer-to-peer lending, except

A) it involves online platforms.
B) borrowers generally have high FICO scores.
C) loans are available only for amounts less than $1,000.
D) interest rates may be lower than at a financial institution.

Question 52

The method of determining the monthly interest amount by adding the interest and loan principal together and dividing by the number of payments is the

A) simple-interest method.
B) annual percentage method.
C) simple-interest declining balance method.
D) add-on interest method.

Question 53

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12%. At the end of the first month, the interest owed on $3,000 is

A) $30.
B) $36.
C) $300.
D) $360.

Question 54

If the lender has the right to take certain specified assets of the borrower in the event of a default on the loan, the loan is a(n) ________ loan.

Question 55

Use the following two columns of items to answer the matching questions below:
loan application

A)disclosure of information including a balance sheet and cash flow statement
B)a contract that specifies the terms of the loan agreed to by the borrower and lender
C)loan that is not backed by collateral
D)life or duration of a loan

Question 56

If the interest rates are the same, a loan using add-on interest will have higher payments and charges than a loan using simple interest.

Question 57

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12%, or 1% a month. If the first payment is $300, how much is the principal portion of the payment?

A) $27
B) $270
C) $280
D) $295

Question 58

Which of the following is not an interest rate calculation method discussed in the text?

A) Annual percentage rate or APR
B) Sum of the digits interest
C) Simple interest
D) Add-on interest

Question 59

Common practices used by dishonest lenders include all of the following, except the lender

A) prohibiting the borrower from purchasing insurance or other financial services as a condition of the loan.
B) charging high loan fees which cause financing costs to be much higher than the quoted rates.
C) requiring that the borrower purchase insurance or other financial services.
D) requiring a large balloon payment that will necessitate additional financing to pay it off.

Question 60

Use the following two columns of items to answer the matching questions below:
unsecured loan

A)disclosure of information including a balance sheet and cash flow statement
B)a contract that specifies the terms of the loan agreed to by the borrower and lender
C)loan that is not backed by collateral
D)life or duration of a loan

Question 61

Buying a car from a dealer with a set price (a no-haggle dealer) is usually more stress-free and less time consuming.

Question 62

Use the following two columns of items to answer the matching questions below:
collateral

A)assets of a borrower that back a secured loan
B)rate that measures the finance expenses
C)interest rate multiplied by the principal

Question 63

Regarding automobile insurance,

A) the best time to shop for rates is while you are at the car dealership.
B) most cars cost the same to insure if the driver is the same.
C) it is better to compare costs before you commit to buying a particular car.
D) you can lower your costs by buying a more expensive car that is less likely to have accidents.

Question 64

________ is a method of computing interest based on the existing principal amount of the loan.

Question 65

Lucky Louie applied for a $5,000 loan payable in one year and was provided the following data; interest due at payoff of $750, application fee $100, credit check $75, processing fee $75. What is the APR of Louie's loan?

A) 20%
B) 17.5%
C) 22.5%
D) There is not enough information to determine the answer.

Question 66

Buying a new car online is just about as efficient as buying an airline ticket or a book.

Question 67

What does the Truth-in-Lending Act of 1969 require lenders to do? What is the APR, and how does it fulfill the purpose of the Act?

Question 68

It is important to buy a car that is not over your budget and to finance the car properly. The more money needed to cover the car payments, the less you can add to your savings or other investments.

Question 69

The more expensive the car, the ________ the payments, and the ________ you can put toward other investments.

A) higher; more
B) higher; less
C) lower; less
D) lower; more

Question 70

Considerations in selecting a car should include all of the following, except

A) what kind of car you really want, regardless of what you need.
B) the size of the car.
C) the price of the car.
D) the size of the engine and fuel economy.

Question 71

Auto loan Internet sites are a good source to estimate the maximum amount you can borrow, based on financial information you provide.

Question 72

In the past you have purchased cars that you have driven for 10 years or more. The mileage on these vehicles usually exceeded 100,000 and therefore you would just give them to a younger family member. Based on this history, your primary financial consideration in selecting a car will be

A) resale value.
B) financing rate.
C) repair expense.
D) personal preference.

Question 73

Which is true regarding resale value of cars?

A) You can't really determine the resale value very accurately before you buy a car.
B) You are always better off to buy a higher priced car with a greater resale value.
C) You are always better off to buy a lower priced car with a lower resale value.
D) Resale values can be determined from the Internet and other sources and should be a consideration in buying a car.

Question 74

When considering how much money to spend on the purchase of a new car, you must consider how your choices affect your spending on other needs. The ________ solution limits your credit card purchases to what you can afford to pay off when your credit card bill arrives each month to avoid accumulation of debt.

A) maximum debt
B) limited debt
C) no debt
D) minimum debt

Question 75

Use the following two columns of items to answer the matching questions below:
simple interest

A)assets of a borrower that back a secured loan
B)rate that measures the finance expenses
C)interest rate multiplied by the principal

Question 76

Shopping for automobile insurance should begin immediately after you close the deal on the car.

Question 77

What should you not consider when selecting a vehicle?

A) Personal preferences
B) Insurance costs
C) All parts are American-made
D) Resale value

Question 78

Use the following two columns of items to answer the matching questions below:
APR

A)assets of a borrower that back a secured loan
B)rate that measures the finance expenses
C)interest rate multiplied by the principal

Question 79

Automobile insurance rates are likely to differ for all of the following reasons, except some cars

A) are more popular than others.
B) cost more to repair after accidents.
C) are more common theft targets.
D) are higher priced.

Question 80

Purchasing a car is a big decision. Therefore, you should not

A) use the Internet to price shop.
B) read Consumer Reports to find a good car value.
C) ask a friend or relative to go with you to the car lot.
D) rely on the dealer personnel as the best source of expert advice.