Quiz 3.2 Personal Loans & Purchasing Decisions

1. Which of the following people does not have a financially sound reason for taking a personal loan?

• 1. Ramon has the money to buy a car, but he can invest the money and make more than he will be charged for his car loan.

• 1. Carrie needs to borrow money to pay her last year of college

• 1. David needs to borrow $1000 so that he can buy season tickets to watch the Cleveland Guardians play.

• D’Angelo has enough money to make a 20% down payment on a new car, and she knows that she can pay the balance if she has a loan for two years.

Which of the following terms is NOT correctly matched with its definition?

• 1. Principle: the amount owed or borrowed

• 1. Terms of the loan: cost of the item if it is not financed

• 1. Down payment: amount of money the buyer gives toward a purchase

• 1. Repayment schedule: number of months needed to repay the entire loan along with the dollar amount of each payment

Why does a lender, such as Huntington Bank, want information about a person’s current cash inflow and cash outflow?

• 1. The information helps to determine the number of cosigners a person will need for the loan to be approved.

• 1. Most lenders do not make loans to anyone whose assets are not twice their liabilities.

• 1. The lender needs to know the person’s credit score before making a loan.

• 1. The information helps the lender determine the person’s ability to pay back the loan.

1. A cosigner is liable for complete repayment of the loan if the primary borrower cannot pay. 

• True

• False

1. What is the purpose of a loan contract?

• 1. It is an offer by the lender to sell something at a given price to another person.

• 1. It is a legally binding agreement that explains the charges to be paid by the buyer and the obligations of the seller.

• 1. It is a promise made to the credit bureaus that the lender will protect the buyer from bankruptcy until the loan is paid in full.

• 1. It is a legally binding agreement that guarantees that the buyer will pay the lender in full and on time.

Why should you be very careful before agreeing to cosign for a loan?

• 1. The cosigner is required to deposit the amount of the loan into a special bank account until the loan is fully paid off.

• 1. The cosigner is agreeing to pay half of the loan amount.

• 1. The cosigner’s credit score will be changed to the score of the primary borrower.

• 1. If the borrower defaults on the loan, the lender will expect to receive full payment from the cosigner.

A high school senior whose family is very poor wants to go to college, but the family cannot afford the expenses.  To help finance her education, she should try to obtain the type of loan where interest charges do not build up while she is in school and even the first few months after graduation.  This type of financing is known as a(n)

• 1. bank loan

• 1. Federal Perkins Loan

• 1. subsidized Federal Stafford Loan

• 1. unsubsidized Federal Stafford Loan

Liability coverage on your car covers

• 1. your car and any damage you do to other property.

• 1. your car, damage to other property and bodily injury to the other party.

• 1. damage you do to other people and their property.

• 1. bills that are extremely expensive that your primary insurance cannot cover

1. Compare and contrast subsidized and unsubsidized student loans.  Which would you prefer and why? (2pts)

Explain how collateral works.  Provide an example.  (2pts)