Question 1

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-An [add-on | acceleration] clause allows the lender to demand repayment of the entire debt if the borrower defaults on his payments.

Accepted Answer

An acceleration clause allows the lender to demand repayment of the entire debt if the borrower defaults on his payments.

Question 2

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-When the interest rate on savings is higher than the interest rate on a loan,it is less expensive to [borrow | use savings] to make a purchase.

Accepted Answer

The answer of INSTRUCTIONS: Choose the word or phrase in...

Question 3

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-About [27% | 47%] of student loans are past due.

Accepted Answer

The correct percentage is "27%" not "47%". The sentence should read: "About 27% of student loans are past due."

Question 4

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-You are borrowing $5,000 at 9%.You may choose a 24 or 36 month repayment plan.Monthly payments will be higher with the [24 | 36] month plan.

Accepted Answer

The 24 month plan will have higher monthly payments because the loan amount will be divided into fewer payments, resulting in a higher payment amount each month compared to if the loan was spread out over a longer period of time.

Question 5

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-If the proceeds from the sale of your repossessed collateral are insufficient to pay the balance due on your loan,the lender usually [can | cannot] collect the deficiency from you.

Accepted Answer

The lender usually can collect the deficiency from you if the proceeds from the sale of repossessed collateral are insufficient to cover the balance due on your loan. This is known as a deficiency judgment.

Question 6

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-Using [simple | add-on] interest would be less expensive for the borrower when determining the total to be paid to the lender.

Accepted Answer

The answer of INSTRUCTIONS: Choose the word or phrase in...

Question 7

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-When the interest rate on savings is lower than the interest rate on a loan,it is less expensive to [borrow | use savings] to make a purchase.

Accepted Answer

The answer of INSTRUCTIONS: Choose the word or phrase in...

Question 8

Jamie is going to buy some furniture with a single payment loan that is discounted.The loan will be for $5,000 for 2 years at 10% interest.Calculate the APR on this loan.

Accepted Answer

The answer of Jamie is going to buy some furniture...

Question 9

Jamil is purchasing a new truck for $30,000.Jamil is making a $2,000 down payment,and he will make 60 monthly payments of $541 each.What are the total finance costs on this loan?

Accepted Answer

The answer of Jamil is purchasing a new truck for...

Question 10

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-The legal method of getting an employer to pay a portion of the borrower's wages to the lender is known as wage [withholding | garnishment].

Accepted Answer

Wage garnishment is the legal method of getting an employer to pay a portion of the borrower's wages to the lender. Wage withholding typically refers to the amount of taxes and other deductions taken out of an employee's paycheck before they receive it.

Question 11

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-[Public lenders | private lenders] are more flexible in providing financial relief when borrowers are under pressure.

Accepted Answer

Public lenders are more flexible in providing financial relief when borrowers are under pressure because they are not subject to the same profit-making pressures as private lenders.

Question 12

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-Students borrowing to pay for college should base the amount borrowed on [current income | future income].

Accepted Answer

Students should base the amount borrowed on their future income potential, as they will need to pay back the loan after graduation. Borrowing based on current income may not accurately reflect their ability to repay the loan in the future.

Question 13

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-There are now about [$1billion | $1 trillion] in student loans outstanding.

Accepted Answer

$1 trillion is a more accurate estimate for the current outstanding student loan debt in the United States. While $1 billion is still a significant sum of money, it is not nearly as significant as $1 trillion in this context.

Question 14

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-Credit life insurance [is | is not] a good financial deal from the perspective of the borrower.

Accepted Answer

Credit life insurance is not a good financial deal from the perspective of the borrower because it only pays off the remaining balance on a loan if the borrower dies, but the premiums can be high and it may be more cost-effective for the borrower to purchase a traditional life insurance policy instead.

Question 15

Calculate the average percentage rate (APR)for an add-on loan with 36 monthly installments.The principal is $4,000; the stated interest rate is 6%.

Accepted Answer

The answer of Calculate the average percentage rate (APR)for an...

Question 16

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-The best loan rates for consumer loans are usually from [savings and loan associations | consumer finance companies].

Accepted Answer

The answer of INSTRUCTIONS: Choose the word or phrase in...

Question 17

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-You are borrowing $5,000 at 9%.You may choose a 24 or 36 month repayment plan.The total finance cost will be higher with the [24 | 36] month plan.

Accepted Answer

The longer the repayment plan, the more months there are for interest to accrue, so the finance cost will be higher for the 36 month plan compared to the 24 month plan.

Question 18

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-A finance company uses the discount method of calculating interest.The loan principal is $5,000,the interest rate is 10%,and repayment is expected in two years.You will receive [$5,000 | $4,000] from the lender.

Accepted Answer

Using the discount method, the amount of the loan will be reduced by the amount of interest that would be earned over the two-year period. The calculation is:
Interest = Principal x Rate x Time
Interest = $5,000 x 0.10 x 2 = $1,000
The lender will deduct this amount from the loan principal, so the borrower will receive $4,000 ($5,000 - $1,000) from the lender. Therefore, the correct choice is B, for the second item.

Question 19

Calculate the finance charge and the monthly payment on a $20,000 add-on installment loan with an interest rate of 9% and a term of 5 years.

Accepted Answer

The answer of Calculate the finance charge and the monthly...

Question 20

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. 
-The Rule of 78 is used to calculate [APR | balance due] when an installment loan is paid off early.

Accepted Answer

The answer of INSTRUCTIONS: Choose the word or phrase in...

Quiz 7: Using Consumer Loans

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -An [add-on | acceleration] clause allows the lender to demand repayment of the entire debt if the borrower defaults on his payments.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -When the interest rate on savings is higher than the interest rate on a loan,it is less expensive to [borrow | use savings] to make a purchase.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -About [27% | 47%] of student loans are past due.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -You are borrowing $5,000 at 9%.You may choose a 24 or 36 month repayment plan.Monthly payments will be higher with the [24 | 36] month plan.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -If the proceeds from the sale of your repossessed collateral are insufficient to pay the balance due on your loan,the lender usually [can | cannot] collect the deficiency from you.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -Using [simple | add-on] interest would be less expensive for the borrower when determining the total to be paid to the lender.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -When the interest rate on savings is lower than the interest rate on a loan,it is less expensive to [borrow | use savings] to make a purchase.

Jamie is going to buy some furniture with a single payment loan that is discounted.The loan will be for $5,000 for 2 years at 10% interest.Calculate the APR on this loan.

Jamil is purchasing a new truck for $30,000.Jamil is making a $2,000 down payment,and he will make 60 monthly payments of $541 each.What are the total finance costs on this loan?

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -The legal method of getting an employer to pay a portion of the borrower's wages to the lender is known as wage [withholding | garnishment].

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -[Public lenders | private lenders] are more flexible in providing financial relief when borrowers are under pressure.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -Students borrowing to pay for college should base the amount borrowed on [current income | future income].

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -There are now about [$1billion | $1 trillion] in student loans outstanding.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -Credit life insurance [is | is not] a good financial deal from the perspective of the borrower.

Calculate the average percentage rate (APR)for an add-on loan with 36 monthly installments.The principal is $4,000; the stated interest rate is 6%.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -The best loan rates for consumer loans are usually from [savings and loan associations | consumer finance companies].

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -You are borrowing $5,000 at 9%.You may choose a 24 or 36 month repayment plan.The total finance cost will be higher with the [24 | 36] month plan.

Calculate the finance charge and the monthly payment on a $20,000 add-on installment loan with an interest rate of 9% and a term of 5 years.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. -The Rule of 78 is used to calculate [APR | balance due] when an installment loan is paid off early.