Deck 9: Personal Loans

Question 1

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)contains a longer grace period.

Answer 1

contains a longer grace period.

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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.

Question 5

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

Question 6

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

Question 7

Each of the following provide personal loans except

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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 12

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

Question 13

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 14

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

Question 15

Even an unsecured personal loan should be backed by collateral.

Question 16

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

A)Family and friends
B)Financial institutions
C)Credit cards
D)Sales finance companies

Question 17

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 18

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

Personal loans include which of the following?

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

Question 20

Personal loans include the following except

A)car loans.
B)mortgage loans.
C)student loans.
D)home equity loans.

Question 21

You could reduce the size of your monthly 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.

Question 22

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)having a large balloon payment that will require additional financing to pay it off.

Question 23

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 24

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 25

The loan contract identifies all of the following except

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

Question 26

Having a longer term loan

A)costs you more 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 27

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 28

In a loan repayment schedule,the term amortized refers to

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

Question 29

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 30

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 31

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 32

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

A)principal borrowed.
B)interest rate.
C)your age.
D)maturity.

Question 33

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

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

Question 34

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 35

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

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 36

The loan contract identifies all but which of the following?

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

Question 37

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 a 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 38

Which kind of loan generally has the lowest interest rate charged?

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

Question 39

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 40

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

Question 41

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

Question 42

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

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

Question 43

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 44

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 45

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

Question 46

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12 percent.At the end of the first month,the interest owed on $3,000 is
(a)$30.
(b)$36.
(c)$300.
(d)$360.

Question 47

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

Question 48

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 49

List four components of a loan contract.

Question 50

In 1969,the Truth-in-Lending Act was enacted.What does APR represent and what is the purpose of the Act?

Question 51

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12 percent,or 1 percent 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 52

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 53

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 54

Personal preferences for a car include all of the following except

A)considering 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 55

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

Question 56

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 57

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

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

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 60

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 61

The advantage to financing a car for a long period of time (of up to seven years)is

A)you will build equity in the car faster.
B)the car will be worth more by the time you pay off the loan.
C)your monthly payment will be lower.
D)you will be able to sell the car before you pay off the loan and have money to pocket.

Question 62

If you are considering trading in a used car on your new one,it is best to

A)tell the dealer right away so he can figure your trade-in credit against the purchase of your new car.
B)not trade the car in,but rather sell it yourself to someone else.
C)make the trade-in deal a separate transaction for the new car deal.
D)not be too concerned about the value given,since dealers are required to give you at least blue book value.

Question 63

There are set limits on how much a student can borrow each year for student loans,but these limits usually increase each year as the student progresses.

Question 64

The decision to purchase versus lease a car is highly dependent on the estimated market value of the car at the end of the lease period.

Question 65

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.

Question 66

Advantages of leasing a vehicle include all of the following except

A)no substantial down payment.
B)don't have to worry about resale of the car when you are finished with it.
C)less hassle than purchasing a vehicle.
D)no maintenance costs.

Question 67

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 68

Disadvantages of leasing a vehicle include all of the following except

A)no equity in the car.
B)cost of finding a buyer for the car at the termination of the lease.
C)responsibility for maintenance costs.
D)additional charges beyond the monthly lease payments.

Question 69

In making the purchase versus leasing decision,it is important to remember that

A)dealers may impose an additional mileage cost.
B)leasing is less risky than a purchase.
C)leasing is less expensive that a purchase.
D)you won't be required to pay maintenance costs on the leased car.

Question 70

Leasing a car is a good option if you drive many miles a year.

Question 71

If you always drive cars many miles and keep them for 10 years,it would probable be best to

A)lease a new car.
B)lease a used car.
C)buy a new car.
D)buy a used car.

Question 72

The cost of leasing a car versus purchasing one

A)is more.
B)is less.
C)is about the same.
D)varies depending on a multitude of factors.

Question 73

The most favorable car financing is that of

A)commercial banks.
B)credit unions.
C)car dealers.
D)There is no one best deal every time; it pays to shop around.

Question 74

In which of the following scenarios would you favor leasing over purchasing a car?

A)The miles that you drive each year varies significantly and is hard to predict
B)Repair expenses on the car are very low
C)The car in question is one whose value depreciates rapidly
D)All of the above

Question 75

It is usually better to lease a vehicle than buy one,since you are not responsible for the repairs or maintenance on a leased car.

Question 76

Advantages to leasing a car instead of buying one are that you need less of a down payment and that you do not need to worry about finding a buyer for your car when the lease is over.

Question 77

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

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

Question 78

What would be the total cost of leasing a vehicle for four (4)years that requires a security deposit of $1,000 (which would be withdrawn from your portfolio,which earns 9 percent per year),has monthly lease payments of $500,and has a mileage restriction of 20,000 with excess mileage resulting in a 10 cents per mile charge.Assume over the life of the lease you exceed the mileage limitations by a total of 8,000 miles.
(a)$24,000
(b)$24,360
(c)$24,800
(d)$25,160

Question 79

Because interest is tax deductible and payments are deferred until you graduate,it is good advice to take out the maximum student loan for which you can qualify.

Question 80

In the past you have purchased cars that you have driven for over 10 years or more.The mileage on these vehicles usually exceeded 100,000 and therefore you just give them to one of your teenage nieces/nephews or your grandchildren.Based on this history,your primary financial selection criteria will be

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