Chapter 8 test quizs

The 5 C's of Credit Worthiness

• Collateral, Capital, Capacity, Conditions, Character

• Credit Score, Income, Debt, Employment History

• Assets, Liabilities, Income, Expenses

• Savings, Investments, Loans, Credit Cards

Conditions

• The interest rate and amount of principal will influence the lender's decision

• The borrower's credit score is irrelevant to the lender's decision

• The loan term has no effect on the lender's decision

• The lender only considers the borrower's income

Monthly Payment Amount

• $150.00

• $202.76

• $250.50

• $300.00

Character

• Borrower's reputation

• Credit score

• Loan amount

• Interest rate

Capacity

• Measures a borrower's ability to repay a loan by comparing income against recurring debts

• The total amount of money a borrower can take out in loans

• The interest rate applied to a loan based on the borrower's credit score

• The duration of time a borrower has to repay a loan

Online/Telephone Payments

• Set up account with creditor’s website.

• Money is taken out of account on specified date.

• Advantage: Supply account info.

• Disadvantage: No need to remember payment dates.

Lender's Rights if Borrower Fails to Repay

• The lender can sell the pledged property and use the proceeds to repay the loan.

• The lender can forgive the loan without any penalties.

• The lender can demand immediate payment of the entire loan amount.

• The lender can take legal action against the borrower without any prior notice.

Cash

• Accepted everywhere.

• Only accepted in some countries.

• Not accepted online.

• Only accepted for large transactions.

Prepayment Penalties in NJ

• Prepayment penalties are legal in New Jersey.

• Prepayment penalties are illegal in New Jersey.

• Prepayment penalties are allowed under certain conditions in New Jersey.

• Prepayment penalties are only applicable to commercial loans in New Jersey.

Collateral in a car loan

• The car acts as collateral and can be repossessed if the loan isn’t paid.

• The loan is secured by a personal guarantee from the borrower.

• The car can be sold at any time regardless of the loan status.

• The collateral is only needed for loans over a certain amount.