Question 1

A customer wants to borrow $125,000 to purchase a new home.The APR on this loan is 10 percent and it is a 30-year mortgage with monthly payments.What is the monthly payment the customer will have to make on this loan?

Accepted Answer

The monthly payment on a 30-year mortgage with an APR of 10 percent and a loan amount of $125,000 is $1,097.

Question 2

A customer wants to borrow $1,200 from Edmond State Bank.Edmond State Bank has an add-on loan with an interest rate of 12 percent and monthly payments for one year.What are the monthly payments this customer will need to make on this loan?

Accepted Answer

The add-on interest for a $1,200 loan at 12% for one year is $144. The total amount to be repaid is $1,344 ($1,200 + $144). Dividing this by 12 months gives a monthly payment of $112.

Question 3

Prepaid cards which carry balances that can be spent electronically in stores until the balance entered in such cards is fully used up are known as:

Accepted Answer

Smart cards are a type of prepaid card that carry balances which can be spent electronically in stores until the balance is fully used up.

Question 4

Which of the following makes the most amount of credit card loans in the United States?

Accepted Answer

Commercial banks make the most amount of credit card loans in the United States.

Question 5

A customer wants to borrower $25,000 for one year from TRC State Bank.The bank offers a discount loan with an interest rate of 15 percent.How much of the loan will be available to the customer?

Accepted Answer

In a discount loan, the interest is deducted from the principal before the loan is disbursed. The interest on a $25,000 loan at 15% is $3,750 ($25,000 * 0.15). Therefore, the customer receives $25,000 - $3,750 = $21,250.

Question 6

According to the text,which of the following has been the fastest growing consumer loan category in the last few decades inside the United States?

Accepted Answer

The answer of According to the text,which of the following...

Question 7

Tammy Payne wants to buy a used car and wants a loan that she will pay off over the next three years with monthly payments.Which of the following categories will this loan fall into?

Accepted Answer

An installment loan is a loan that is repaid in regular monthly payments, typically over a period of time. This type of loan is commonly used to finance larger purchases, such as a car or home, and is often preferred by borrowers because it allows for predictable monthly payments and a set repayment schedule. Therefore, Tammy Payne's loan to buy a used car and repay it over three years with monthly payments is an example of an installment loan.

Question 8

According to the text,which of the following appears to be the most important factor used in the FICO credit scoring system?

Accepted Answer

The text states that the FICO credit scoring system places the most importance on the borrower's payment history.

Question 9

According to the text,which of the following types of loan has the highest interest rate?

Accepted Answer

Credit card loans typically have higher interest rates than other types of loans because they are unsecured loans and carry a higher risk for lenders.

Question 10

A customer is seeking a $150,000 home mortgage.The bank requires the customer to pay 1¾ points up front.How much of the loan amount will actually be available to the customer if the bank approves the loan?

Accepted Answer

1¾ points is equivalent to 1.75% of the loan amount.
So, upfront cost = 1.75% of $150,000
= 0.0175 x $150,000
= $2,625
This amount is subtracted from the loan amount to give the actual amount available to the customer:
$150,000 - $2,625 = $147,375

Question 11

Jeremiah Uselton needs a loan to purchase a condo in Sarasota,Florida.Which of the following categories will this loan fall into?

Accepted Answer

A residential mortgage loan is specifically designed for the purchase of a home or condo. Since Jeremiah Uselton needs a loan to purchase a condo in Sarasota, Florida, a residential mortgage loan would be the best choice. A home equity loan, on the other hand, is typically used by homeowners to access the equity in their homes for purposes such as debt consolidation or home renovations. Noninstallment loans and revolving lines of credit are other types of loans that are not well-suited for this purpose.

Question 12

Paul Carter requests an automobile loan of $15,000 that will be repaid over the next four years in monthly repayments.The First National Bank tells Mr.Carter that his total finance charges will be $4675.20.What is the APR on this loan?

Accepted Answer

To calculate the APR (annual percentage rate) on this loan, we need to use the formula:

Total finance charges = P × (r/12) × (1 + r/12)^n / ((1 + r/12)^n - 1)

where P is the loan amount, r is the APR, and n is the number of months in the loan term.

Plugging in the given values, we get:

$4675.20 = $15,000 × (r/12) × (1 + r/12)^48 / ((1 + r/12)^48 - 1)

Simplifying and solving for r, we get:

r = 0.01373 or 1.373%

Therefore, the APR on this loan is 1.373% or approximately 14%. The correct answer is C.

Question 13

The first major bank within the U.S.to establish a separate department for granting loans to consumers was:

Accepted Answer

First National City Bank of New York, also known as Citibank, established a separate department for granting loans to consumers in 1912, making it the first major bank in the U.S. to do so.

Question 14

An additional charge on a home mortgage loan that a borrower may be asked to pay up front is referred to as:

Accepted Answer

Points are an additional charge on a home mortgage loan that a borrower may be asked to pay up front. One point is equal to 1% of the loan amount. Lenders may offer a lower interest rate in exchange for the borrower paying points.

Question 15

According to the text,which of the following types of loan has the lowest interest rate?

Accepted Answer

New automobile loans typically have the lowest interest rate among the options given, as they are secured loans backed by the value of the vehicle, which reduces the lender's risk.

Question 16

Beverly Frickerson asks for a $15,000 loan for one year.The bank tells her that it will give her $13,050 and deduct $1,950 in interest upfront.What is the effective rate of interest on this loan?

Accepted Answer

To find the effective rate of interest, we need to use the formula:
Effective Rate of Interest = (Total Interest Paid/Loan Amount) * 100%
Total Interest Paid = $1,950
Loan Amount = $13,050
Effective Rate of Interest = (1,950/13,050) * 100% = 14.94%
Therefore, the answer is A) 14.94 percent.

Question 17

Mark Brown receives a $2,000 loan with the intention of repaying the loan in 12 months.However,at the end of one month,Mr.Brown discovers that he can repay the loan in full.According to the rule of 78s,what percentage of the interest charge is he entitled to receive as a rebate?

Accepted Answer

The answer of Mark Brown receives a $2,000 loan with...

Question 18

Jane Smith has asked for a 30 year mortgage (repayable in monthly installments)to purchase a home in Oklahoma City,Oklahoma.The purchase price of the home is $150,000 of which $125,000 must be borrowed.If the APR on this loan is 8 percent,how much will Jane's total financing charges be?

Accepted Answer

The answer of Jane Smith has asked for a 30...

Question 19

Emily Barnes has gone to the First State Bank and gotten a loan of $5,000 so she can go on vacation.She plans on paying the loan back in one payment in three months.Which of the following categories will this loan fall into?

Accepted Answer

This loan falls into the category of a noninstallment loan because Emily plans to pay back the entire amount in one lump sum after a specific period, rather than in regular installments over time.

Question 20

FICO credit scoring system provides credit scores in the range of:

Accepted Answer

The FICO credit scoring system provides credit scores in the range of 300 to 850. This range is commonly used by lenders to assess an individual's creditworthiness, with higher scores indicating a lower risk of defaulting on a loan or credit card payment.

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