Deck 9: Personal Loans

Question 1

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

Answer 1

Tuition and dorm fees

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

Even an unsecured personal loan should be backed by collateral.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

All of the following provide personal loans except

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

Question 8

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

Question 9

Personal loans include all of the following,except

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

Question 10

On an amortization schedule,more interest and less principal 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

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 13

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

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

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 16

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 17

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 18

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 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 are correct

Question 20

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

Question 21

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 22

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 23

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 of the loan.

Question 24

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 25

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 26

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

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

Question 27

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 28

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 29

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 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

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 32

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 33

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 34

The loan contract identifies all of the following except

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

Question 35

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 36

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 37

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 38

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) Credit card statements

Question 39

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 40

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 41

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 42

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

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

Question 43

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

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

Question 44

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 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

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

Question 47

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

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

Question 48

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 49

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 50

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 51

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

Question 52

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 53

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 54

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 55

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 56

List four components of a loan contract

Question 57

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

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

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

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 financial institution.

Question 60

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 61

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 62

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

Question 63

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)interest rate multiplied by the principal
C)rate that measures the finance expenses

Question 64

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 65

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)interest rate multiplied by the principal
C)rate that measures the finance expenses

Question 66

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

Question 67

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 68

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.

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

Question 69

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)interest rate multiplied by the principal
C)rate that measures the finance expenses

Question 70

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

Question 71

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 72

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 73

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 74

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 75

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 76

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

Question 77

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 78

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 79

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 80

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.