WorksheetsCh. 6: Using Credit & Ch. 7: Using Consumer Loans
Total questions: 50
Worksheet time: 25mins
Using credit is the ideal way to meet basic living expenses.
True
False
An individual can be overusing credit even if he or she can afford to make the minimum monthly payments on time.
True
False
Credit cards with very low minimum payment requirements are in the consumers’ best interest.
True
False
Always paying cash helps in establishing a high level of creditworthiness.
True
False
Retail charge cards are cheaper than credit cards provided by financial institutions.
True
False
The purpose of a credit investigation is to evaluate the kind of risk that you pose to the lender.
True
False
A credit card application requests information that is routinely used to predict creditworthiness.
True
False
Credit reports on individual borrowers are provided by credit card issuers.
True
False
You should review your credit bureau file every year.
True
False
The average filer of personal bankruptcy has low income, is between 25 and 34 years old, and has no college-level education.
True
False
Most consumer loans are made at fixed rates of interest.
True
False
The cash value of some types of life insurance policies can be used as collateral for loans.
True
False
From a financial planning perspective, you need not worry about the size of monthly payments when taking a loan.
True
False
It is legal for a lender to charge a prepayment penalty.
True
False
In most cases, lenders take the physical property used as collateral from the borrower and liquidate the collateral until the loan is repaid in a lump sum.
True
False
Only stocks can be used as collateral for personal loans.
True
False
When the interest rate on savings is lower than the interest rate on a loan, it is less expensive to use your savings to make a purchase.
True
False
It is good to use credit for
Dining at a restaurant.
Buying a car.
Visiting a tourist destination.
Paying rent for your home.
Which of the following is the BEST way to build a strong credit history?
Use a debit card on a regular basis.
Regularly use credit cards to buy on impulse.
Consistently make payments on time.
Use one form of credit to make payments on other debt.
If you are expecting difficulties in making your payments, it is recommended that you
Talk to the creditors.
Declare bankruptcy.
Obtain more credit.
Transfer your debt to another creditor.
The “5 Cs of Credit” are
Character, capacity, collateral, cash flow, and condition.
Character, cash flow, collateral, capital, and condition.
Character, capacity, compensation, capital, and condition.
Character, capacity, collateral, capital, and condition.
To establish credit, you should first
Open checking and saving accounts.
Use credit extensively.
Obtain a small loan.
Pay cash for all purchases.
As a percent of take-home pay, monthly consumer credit payments should not exceed
25%
20%
15%
10%
Clare’s annual gross salary is 36,000,andherafter−taxincomeis 28,000. What is Clare’s maximum recommended monthly consumer credit payment?
$600
$480
$360
$200
Any credit card purchase will effectively be an interest-free loan if you have a zero balance when the grace period begins and you
Pay for the purchase within 6 months.
Make the minimum payment.
Pay off the entire balance on or before the due date.
Receive a cash advance.
A frequent flyer card can be aptly classified as a(n)
Reward card.
Retail charge card.
Cash advance.
Student credit card.
A payment made using a(n) ______ is equivalent to paying by cash.
Retail credit card
Debit card
Affinity card
Student credit card
A(n) ______ is a type of reporting agency that collects and sells credit information about individual borrowers.
Credit bureau
Insurance company
Bank
Credit score house
Which of the following is NOT requested in a typical credit card application?
Existing charge accounts
Employment
Income
Political affiliations
If the information in an individual borrower's credit report contains an error, he or she is entitled to
Request a correction
Sue the credit bureau
Erase the credit report
Refuse to provide credit information
Which of the following components carries the most weight in deriving a FICO score?
Length of credit history
Payment history
Different types of credit uses
New credit
If a borrower has a high FICO score, then there is
A minimal chance of his or her loan getting approved.
A high chance of having higher monthly payments for his or her loan.
A high chance of more collateral requirements for his or her loan.
A high chance that a lower interest rate will be charged for his or her loan.
The most common use of consumer loans is to finance
A new car
College education
A vacation
A house
A ______ loan is intended to help consumers who have an unhealthy credit situation caused by overusing their credit.
Personal
Single-payment
Consolidation
Standard
Which of the following statements regarding loan collateral is true?
Loan secured by collateral always have higher finance charges than unsecured loans.
Collateral is an item of value used to secure the principal portion of a loan.
Collateral is always required by banks to lend to customers with good credit ratings.
Collateral is an item of value used to secure the interest portion of a loan.
______ loans do not have to be repaid until after you graduate from college.
Direct and Perkins
Direct and Parent Loans for Undergraduate Students (PLUS)
Only Direct
Only Perkins
A(n) ______ loan is repaid in a series of fixed, scheduled payments rather than in a lump sum.
Single-payment
Installment
Standard
Consolidated
Mason Corporation borrows funds for the expansion of its business. The loan is secured with the office building. Therefore, the office building serves as ______ for the loan.
A liability
Collateral
Debt
Insurance
The rate of interest charge on ________ loans changes periodically in keeping with prevailing market conditions.
Nominal-rate
Standard-rate
Variable-rate
Fixed-rate
The ________ uses a special tax-sheltered savings and investment program rather than borrowing money to pay for college.
529 college savings plan
Wage Earner Plan
Perkins loan
Parent Loan for Undergraduate Students (PLUS)
Consumer finance companies
Charge rates that are regulated by the states where they do business.
Are cooperative financial institutions that are owned by their members.
Are nonprofit financial institutions.
Accept deposits from their members and use the deposits for lending.
Credit unions lend money to qualified people who are their ________
Employees
Members
Suppliers
Stockholders
Which of the following sources of consumer loans often has the most favorable terms for borrowers?
Commercial banks
Credit unions
Consumer finance companies
Asset management companies
Borrowing from ________ is not advisable.
Relatives
Consumer finance companies
Credit unions
Commercial banks
You should consider your ________ before you take on a large consumer loan.
Educational qualifications
Past employment
Financial plans
Career plans
You are borrowing $5,000 at 9% interest rate. The total finance cost will be the highest in a
24-month repayment plan
36-month repayment plan
12-month repayment plan
48-month repayment plan
If Liza’s debt safety ratio is 15% and monthly take-home pay is $4,500, which of the following equal her total monthly payments?
$675
$500
$450
$890
Most single-payment loans are secured by
Collateral
Security claims
Finance charges
Liens
A legal claim that allows creditors to liquidate loan collateral is a
Loan application.
Note.
Security claim.
Lien.
It is better to use your savings instead of borrowing to make a purchase when
You have adequate savings.
Interest rates are rising.
The cost of borrowing is much greater than the interest earned on savings.
The interest earned on savings is greater than the interest paid on the loan.
