Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
1. (p. 213) After you have selected a product, you should buy it immediately before the store
runs out of it.
2. (p. 213) Buying on credit is almost always cheaper than paying cash.
3. (p. 213) Parents or family members are often the source of the least expensive loans.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
4. (p. 214) You can often obtain medium-priced loans from commercial banks and credit unions.
5. (p. 214) The least expensive loans are available from finance companies and retailers.
6. (p. 214) Credit unions rarely offer the same range of consumer loans that banks and other
financial institutions do.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
7. (p. 219) Two key concepts that you should keep in mind when borrowing are the finance
charge and the annual percentage rate.
8. (p. 219) The finance charge is the total dollar amount you pay to use credit.
9. (p. 219) The annual percentage rate is the percentage cost of credit on a yearly basis.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
10. (p. 220) If you want to reduce your borrowing costs, you may need to accept conditions that
lower the risk for your lender.
11. (p. 221) With collateral, you will probably pay a higher interest rate on your loan than you
would without collateral.
12. (p. 222) You may be able to borrow at a lower interest rate if you accept a shorter-term loan.
13. (p. 222) The two most common methods of calculating interest are compound and simple
interest formulas.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
14. (p. 222) The most basic method of calculating interest is the compound interest calculation.
15. (p. 222) When more than one payment is made on a simple interest loan, the method of
computing interest is known as the declining balance method.
16. (p. 223) With the add-on interest method, interest is calculated on the full amount of the
original principal.
17. (p. 224) The fairest method of calculating interest is the adjusted balance method.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
18. (p. 224) The fairest method of calculating interest is the average daily balance method.
19. (p. 224) If creditors add finance charges after subtracting payments made during the billing
period, this is called the previous balance method.
20. (p. 224) If creditors give you no credit for payments made during the billing period, it is
called the adjusted balance method.
21. (p. 224) The Truth in Lending law does not set the interest rates or tell the creditor how to
make interest calculations.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
22. (p. 225) If you want to take advantage of the interest-free period on your credit card, you
must pay your bill in full every month.
23. (p. 227) Inflation increases the purchasing power of money.
24. (p. 227) You can deduct interest paid on consumer loans for state and federal income tax
returns.
25. (p. 227) Banks often encourage you to make the maximum payment.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
26. (p. 228) The rule of 78s formula dictates that you pay less interest at the beginning of a loan.
27. (p. 228) Under the rule of 78s, loans for a year or less usually do not allow for a finance
charge rebate.
28. (p. 231) The most commonly purchased type of credit insurance is credit life insurance.
29. (p. 231) Credit life insurance provides for the repayment of the insured loan if the borrower
dies.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
30. (p. 232) The consumer credit laws require that an advance notice be given before
repossessing a car.
31. (p. 232) The Fair Debt Collection Practices Act regulates the ways debt collection agencies
do business.
32. (p. 234) “Keeping up with the Joneses” is one of the reasons for indebtedness.
33. (p. 234) Overindulgence of children is a signal of potential debt problems.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
34. (p. 237) Anyone overburdened by credit obligations can phone, write, or visit a Consumer
Credit Counseling Service office.
35. (p. 238) There is never a charge for any service provided by a Consumer Credit Counseling
Service office.
36. (p. 238) The Consumer Credit Counseling Service counseling is usually free.
37. (p. 238) The Consumer Credit Counseling Service will refinance all of your existing debts
for you.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
38. (p. 238) In addition to the Consumer Credit Counseling Service, universities, credit unions,
military bases, and state and federal housing authorities sometimes provide credit counseling
services.
39. (p. 240) An increasing number of bankruptcy filers are well-educated, middle-class baby
boomers.
40. (p. 240) For some debtors, bankruptcy has become an acceptable tool of credit management.
41. (p. 242) You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13
bankruptcy.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
42. (p. 242) A person filing for relief under the bankruptcy code is called a bankrupt, not a
debtor.
43. (p. 242) Chapter 7 bankruptcy is also known as straight bankruptcy.
44. (p. 242) Both Chapter 7 and Chapter 13 bankruptcy are considered an easy way out of debt.
45. (p. 242) In a straight bankruptcy, many, but not all, debts are forgiven.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
46. (p. 242) In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her
property.
47. (p. 243) You have the right to file your own bankruptcy case and represent yourself at all
court hearings.
48. (p. 243) There are no costs involved in filing for a bankruptcy.
49. (p. 242) If you declare a Chapter 7 bankruptcy, you do not have to pay alimony, child
support, or educational loans.
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
50. (p. 213) By evaluating your credit options, you may:
51. (p. 213) Which one of the following financing methods provides a float period?
52. (p. 213) Float can be defined as:
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
53. (p. 213) Which one of the following is often the source of the least expensive loan?
54. (p. 213) One of the drawbacks of borrowing from parents or family members is that such
loans:
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
55. (p. 219) Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The
bank starts charging interest on cash advances immediately. You get a cash advance of $600
on the first day of the month. You get your credit card bill at the end of the month. What is the
total finance charge you will pay on this cash advance for the month? Assume each month has
30 days
56. (p. 214) You can often obtain medium-priced loans from:
57. (p. 214) Membership in credit unions has been:
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
58. (p. 214) The most expensive loans are available from:
59. (p. 218) Which federal law, passed in 1969, requires creditors to state the cost of borrowing
in common language?
60. (p. 219) The total dollar amount you pay to use credit is called the:
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
61. (p. 219) If you borrow $100 at 10 percent simple annual interest and repay it in one lump-
sum at the end of one year, you will repay:
62. (p. 224) If creditors add finance charges after subtracting payments made during the billing
period, this is called the:
63. (p. 224) If creditors give you no credit for payments made during the billing period, this is
called the:
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
64. (p. 228) Which interest formula may be used by creditors to determine how much interest
you have paid at any point in a loan?
65. (p. 231) The most commonly purchased type of credit insurance is:
66. (p. 231) Which type of credit insurance repays your debt in the event of a loss of income due
to illness or injury?
Chapter 07 – Choosing a Source of Credit: The Costs of Credit Alternatives
67. (p. 228) Which formula dictates that you pay more interest at the beginning of the loan and
pay less and less interest as the debt is reduced?
68. (p. 232) If you find that you cannot make your payments, the first thing you should do is:
69. (p. 234) According to consumer affairs experts, the nation’s number one family financial
problem is: