Deck 7: Personal Financing - Personal Loans

Question 1

Normally, it is a good idea to purchase credit life insurance and other financial services from a lender when getting a loan.

Answer 1

False

Question 2

Even an unsecured personal loan should be backed by collateral.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

If you use the proceeds to improve your home, the interest on a home equity loan is deductible from your income taxes.

Question 7

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

Question 8

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 9

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

Question 10

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 11

The proceeds from a home equity loan can be used for any purpose, including a vacation, tuition payments, or health care expenses.

Question 12

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

Question 13

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

Question 14

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

Question 15

Financial institutions provide home equity loans up to a maximum of 70 percent of the value of the equity in a home.

Question 16

A personal loan is different from access to credit from a credit card in that it is normally used to finance one large purchase and has a specific repayment schedule.

Question 17

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

Question 18

The most common source of financing is a personal loan from a financial institution such as a bank or a credit union.

Question 19

If a loan is co-signed and the borrower defaults, the lender has the right to sue the co-signer or try to seize his or her assets just as if he or she were the borrower.

Question 20

Home equity is defined as the market value of the home less the debt owed on the home.

Question 21

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

Question 22

The federal government will prosecute any lender that charges more than 50 percent on a personal loan

Question 23

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

Question 24

Advantages to leasing a car rather than 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 25

If you default on an unsecured loan, the lender can seize your car and sell it to repay the loan.

Question 26

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

Question 27

A $5000 loan carrying an add-on interest rate of 15 percent and repayable over seven years would result in a total repayment, including interest, of $ 10 250.

Question 28

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 29

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 30

If you were charged the maximum rate of interest on a $1000 loan for one year, the interest cost would be $60.

Question 31

A 20 percent interest rate on a $10 000 five-year loan would result in interest charges of $10 000.

Question 32

The maximum rate that financial institutions can charge on loans is 60 percent.

Question 33

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

Question 34

You will need to provide the bank with a resume to apply for a loan.

Question 35

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 36

A net worth statement, cash flow statement, and proof of income will help you secure personal loans.

Question 37

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 38

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 39

Collateral is security for a personal loan.

Question 40

A lender would be able to charge you $40 interest on a one-month short-term loan of $400.

Question 41

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

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

Question 42

The co-signer of a loan is not responsible for any unpaid balance if the borrower does not repay the loan.

Question 43

A boat loan can be backed by assets other than those purchased with the loan, such as term deposits.

Question 44

Making extra payments on a loan

A)reduces the total amount of interest paid.
B)gives you extra income for living expenses.
C)lengthens the maturity of the loan.
D)reduces the amount of scheduled future payments.

Question 45

Which of the following is not a consideration when deciding the amount of a loan to apply for?

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 borrow only the amount you need.
D)You will have to pay interest on the entire amount.

Question 46

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 47

A personal loan is different than access to credit from a credit card because

A)it has a repayment schedule.
B)it requires interest payments.
C)it has higher interest charges.
D)it is backed by collateral.

Question 48

In a loan repayment schedule, the term amortized refers to

A)the method by which interest is calculated.
B)the repayment of all of the principal through a series of equal payments.
C)the maturity date.
D)the term where the interest rate is fixed.

Question 49

The personal cash flow statement indicates income and expenses and suggests how much free cash flow an individual has on a periodic basis.

Question 50

When Mary wants to apply for a personal loan, she needs to provide a personal balance sheet and a personal cash flow statement.

Question 51

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 52

A second mortgage is an unsecured mortgage loan that is subordinate to another loan.

Question 53

A home equity loan is a loan in which the equity in a home serves as security.

Question 54

Chartered banks, finance companies, credit unions, and insurance companies all provide personal loans.

Question 55

Which of the following has no effect on the size of the monthly payments on a loan?

A)Principal borrowed
B)Interest rate
C)Cash flow
D)Maturity

Question 56

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 57

The first step in obtaining a personal loan is to identify possible sources of financing and evaluate the possible loan terms.

Question 58

A shorter maturity for a loan results in lower monthly payments and therefore makes it easier to cover the payments each month.

Question 59

A lender that includes a large balloon payment at the end of a loan that will require additional financing to pay off is regarded as unethical.

Question 60

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.
D)are not desirable from the lender's point of view.

Question 61

The most favourable car financing is obtained from

A)commercial banks.
B)credit unions.
C)manufacturer's financing from car dealers.
D)getting quotes from various sources.

Question 62

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 then you gave them to one of your teenaged nieces or nephews. Based on this history, your primary financial selection criteria should be

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

Question 63

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

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

Question 64

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 but not on revolving credit.

Question 65

Which of the following is most accurate about second mortgages?

A)Most people have two mortgages on their homes.
B)The primary mortgage is for the down payment and the secondary mortgage is the main mortgage.
C)A home equity loan is commonly a second mortgage.
D)Second mortgages are last resort financing.

Question 66

Which is true regarding resale value of cars?

A)You cannot really determine the resale value very accurately before you buy a car.
B)You are always better off buying a higher-priced car with a greater resale value.
C)You are always better off buying a lower-priced car with a lower resale value.
D)Resale values can depend on the model of vehicle and can be researched in advance.

Question 67

A longer-term loan

A)costs you more in interest.
B)increases your monthly payments.
C)is almost always the best alternative for credit users.
D)gives you access to additional sources of financing.

Question 68

Common practices used by dishonest lenders include

A)charging additional interest on late payments.
B)charging fees which make the real financing cost much higher than the quoted interest rate.
C)charging higher interest rates than the banks.
D)All of the above.

Question 69

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 70

Which of the following is true about a home equity loan?

A)It has a fixed interest rate and maturity.
B)It is a good way to combine different kinds of debt.
C)The interest may be tax deductible in Canada.
D)It allows you to borrow up to 100 percent of the market value of your home.

Question 71

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 sole source of expert advice.

Question 72

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 73

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)Co-signed

Question 74

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

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

Question 75

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

A)risk adjusted basis.
B)annualized basis.
C)total basis.
D)amortized basis.

Question 76

Which of the following is most accurate about interest rates in Canada?

A)Charging a rate of 3 percent for a seven day payday loan is legal in Canada.
B)As long as loan charges come in the form of fees, they are not included in interest rate calculations.
C)Payday loan companies provide a necessary service and have permission to charge above the maximum loan rate in Canada.
D)The maximum interest rate that can be charged on a consumer loan in Canada is 60 percent.

Question 77

Most financial institutions provide home equity loans

A)up to 75 percent of the home value.
B)up to 80 percent of the home value.
C)up to 70 percent of the home value.
D)up to 85 percent of the home value.

Question 78

The most important thing to consider about co-signing a loan is

A)the co-signer is responsible for any default of the borrower.
B)the reward in helping someone usually outweighs the risk.
C)the risk is limited to the specific loan agreement.
D)that it is a very common transaction.

Question 79

Which of the following methods of calculating interest results in the lowest interest charges?

A)Annual percentage rate or APR
B)Simple interest
C)Add-on interest
D)Effective interest

Question 80

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

A)tell the dealer right away so he can figure your trade-in credit against the purchase price of your new car.
B)not trade the car in, but rather sell it yourself over the internet.
C)negotiate the price of the new car before advising the dealer you have a trade-in.
D)not be too concerned about the value given, since dealers are required to give you at least Blue Book value.