Chapter 7—Using Consumer Loans
e.
buy back-to-school clothes.
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Bloom’s: Understanding
70. The most popular use of consumer loans is to
a.
purchase a car.
b.
finance a college education.
c.
finance a vacation.
d.
buy a house.
e.
buy furniture.
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
71. Consumers whose debt burden has become very heavy might apply for a(n)
a.
b.
c.
d.
e.
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Bloom’s: Applying
72. To qualify for a Stafford loan, you must
a.
demonstrate financial need.
Chapter 7—Using Consumer Loans
b.
have a good credit rating.
c.
make satisfactory academic progress.
d.
all of the above
e.
a and c only
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Bloom’s: Remembering
73. To qualify for a Perkins loan, you must
a.
demonstrate financial need.
b.
visit the financial institution.
c.
apply through your parents.
d.
all of the above
e.
a and c only
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Bloom’s: Remembering
74. Regarding student loans, which of the following is not true?
a.
They are available for both undergraduate and graduate students.
b.
Applications can be filled out on the Internet.
c.
There is no limit on how much can be borrowed with each loan.
d.
There is no limit on the number of loans one can have.
e.
Interest may be tax deductible.
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Bloom’s: Remembering
Chapter 7—Using Consumer Loans
75. Regarding student loans, which of the following is true?
a.
They are available only for undergraduate students.
b.
Parents (or legal guardians) must cosign.
c.
There is a limit on how much can be borrowed wirh each loan.
d.
There is a limit on the number of loans one can have.
e.
Interest does not have to be repaid.
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Bloom’s: Remembering
76. ____ loans do not have to be repaid until after you graduate from college.
a.
Stafford and Perkins
b.
Stafford and PLUS
c.
Perkins and PLUS
d.
Only Stafford
e.
Only Perkins
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United States – AK – DISC: TVM
Bloom’s: Remembering
77. If your installment loan has a variable interest rate,
a.
the rate will remain the same over the life of the loan.
b.
the amount you borrowed will change with interest rates.
c.
you cannot accurately predict the total interest you will pay on the loan.
d.
you can calculate the total interest you will pay on the loan.
e.
none of these are true.
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United States – KS – DISC: Financial Markets and Inte – DISC: Financial Markets and
Chapter 7—Using Consumer Loans
78. Commercial banks generally charge lower interest rates than other lending institutions because
a.
they make shorter-term loans.
b.
they usually take only the best credit risks.
c.
depositors require lower rates.
d.
they get their funds in the open credit market.
e.
they make secured loans only.
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Bloom’s: Remembering
79. A ____ is often a source of low-rate automobile financing on specific models of vehicles.
a.
savings and loan association
b.
credit union
c.
commercial bank
d.
consumer finance company
e.
captive finance company
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Bloom’s: Remembering
80. If you needed a loan to buy furniture, the lowest interest rate would usually be available from a
a.
savings and loan association.
b.
pawn shop.
c.
captive finance company.
d.
consumer finance company.
e.
credit union.
Bloom’s: Analyzing
Chapter 7—Using Consumer Loans
81. The highest interest rate installment loans are usually made by
a.
consumer finance companies.
b.
commercial banks.
c.
credit unions.
d.
savings and loan associations.
e.
life insurance companies.
a
Moderate
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Bloom’s: Remembering
82. Credit unions lend money to qualified people who are
a.
employees.
b.
members.
c.
previous borrowers.
d.
policyholders.
e.
stockholders.
Easy
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Bloom’s: Remembering
83. The majority of loans made by savings and loan associations are ____ loans.
a.
home improvement
b.
auto
c.
mortgage
d.
education
e.
consolidation
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United States – AK – DISC: TVM
Bloom’s: Remembering
Chapter 7—Using Consumer Loans
c
Easy
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
84. Sales finance companies
a.
lend money to retailers.
b.
buy installment loans from retailers.
c.
sell installment loans to retailers.
d.
lend money to consumers.
e.
sell installment loans to banks.
Moderate
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Bloom’s: Remembering
85. A loan against the cash value of your life insurance policy would be characterized by
a.
increased death benefits to beneficiaries.
b.
increased premiums.
c.
unchanged death benefits available to beneficiaries.
d.
no specific repayment date.
e.
annual percentage rates higher than other sources.
Challenging
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Bloom’s: Remembering
86. Bob Shockey borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private
college. Assuming he pays interest as it accrues, if Bob dies before the debt is repaid his beneficiary will receive
a.
$275,000.
Chapter 7—Using Consumer Loans
b.
$250,000.
c.
$225,000.
d.
$25,000.
e.
Taxable income.
c
Challenging
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
87. Which of the following are recommended if you loan money to a friend or relative?
a.
Charge a market rate of interest.
b.
Have a lawyer draft a loan contract.
c.
Put the agreement in writing.
d.
Make the loan due within one year or less.
e.
All of the these apply.
c
Moderate
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
88. Which of the following are recommended if you loan money to a friend or relative?
a.
Do it in a business-like fashion.
b.
Charge interest if the loan is not to be quickly repaid.
c.
Be sure both parties understand it is a loan, not a gift.
d.
Lend only money you can afford to give away.
e.
All of the above
e
Moderate
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
Chapter 7—Using Consumer Loans
89. Besides the finance charge, you should also consider ____ when you shop for a consumer loan.
a.
loan maturity
b.
total cost of the loan
c.
collateral requirements
d.
prepayment penalties
e.
all of the above
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Bloom’s: Remembering
90. A single-payment loan is advantageous only if
a.
the interest rate is less than on an installment loan.
b.
funds will be available to repay the lump sum.
c.
figured with the discount method.
d.
figured with the simple interest method.
e.
it is unsecured.
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Bloom’s: Analyzing
91. A single-payment loan
a.
is generally unsecured by collateral.
b.
usually matures in one year or less.
c.
usually matures in five to seven years.
d.
is generally used to finance auto purchases.
e.
is provided by sales finance companies.
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – KS – DISC: Financial Markets and Inte – DISC: Financial Markets and
Chapter 7—Using Consumer Loans
92. If you borrow money with a single-payment loan and discover you cannot pay it back when it is due you should
a.
let the payment become past due.
b.
consolidate the loan.
c.
convert the loan to installments.
d.
negotiate a loan rollover
e.
file bankruptcy
Moderate
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
93. When the simple-interest method is used to determine finance charges, the interest is calculated based on the
a.
ending balance of the loan.
b.
average outstanding balance.
c.
actual loan balance outstanding.
d.
beginning balance of the loan.
e.
none of these.
c
Challenging
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
94. Annual percentage rate is equivalent to
a.
dollar cost of credit method.
b.
discount method.
c.
average loan balance method.
d.
add-on method.
e.
simple interest method.
e
Challenging
Bloom’s: Remembering
Chapter 7—Using Consumer Loans
95. The annual percentage rate (APR) on a single-payment loan for $1,000 at a simple interest rate of 12% is
a.
10%.
b.
12%.
c.
15%.
d.
18%.
e.
24%.
Challenging
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Bloom’s: Understanding
96. Purchasing credit life or disability insurance protection is usually
a.
required in order to make the loan.
b.
nonnegotiable.
c.
at the lender’s option.
d.
very costly.
e.
a good idea for the borrower.
Moderate
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Bloom’s: Understanding
97. When credit life or disability insurance protection is required as a condition of a loan, the cost
a.
must be added to the finance charge.
b.
must be included in the APR calculation.
c.
is generally very reasonable.
d.
a and b
e.
a, b, and c
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Bloom’s: Analyzing
Chapter 7—Using Consumer Loans
Challenging
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Bloom’s: Remembering
98. Installment loans using the simple interest method
a.
have the highest finance charges of any method.
b.
have interest charged only on the monthly loan balance.
c.
do not have balloon payments.
d.
have a lower APR than the stated interest rate.
e.
have a higher APR than the stated interest rate.
Challenging
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United States – AK – DISC: TVM
Bloom’s: Understanding
99. You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the
interest on this installment loan will be the
a.
add-on method.
b.
double-declining balance method.
c.
discount method.
d.
simple interest method.
e.
past-due balance method.
a
Challenging
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United States – AK – DISC: TVM
Bloom’s: Understanding
100. The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be
a.
$278
Chapter 7—Using Consumer Loans
b.
$300
c.
$314
d.
$344
e.
$380
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Bloom’s: Evaluating
101. Home equity loans are similar to other installment loans except
a.
interest rates are generally higher.
b.
the interest paid is generally tax deductible.
c.
your home is used as collateral.
d.
they are typically unsecured debts.
e.
b and c
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Bloom’s: Understanding
102. Sometimes it may be better to use savings rather than credit to make a purchase. This would be recommended when
a.
the borrower has adequate savings.
b.
interest rates are rising.
c.
interest rates are falling.
d.
the cost of borrowing is greater than the interest earned on the savings.
e.
interest earned on savings is greater than the interest paid on the loan.
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Bloom’s: Analyzing
Chapter 7—Using Consumer Loans
103. A legal claim that allows creditors to liquidate loan collateral is a
a.
loan.
b.
note.
c.
security claim.
d.
lien.
e.
none of these
Moderate
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United States – AK – DISC: TVM
Bloom’s: Remembering
104. The average graduating college senior leaves school with about _______ in debt.
a.
$12,800
b.
$18,400
c.
$26,300
d.
$30,000
e.
$50,000
Easy
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Bloom’s: Remembering
105. Which of the following loan sources is the most expensive?
a.
Commercial banks
b.
Credit unions
c.
Consumer finance companies
d.
Savings and loan associations
c
Moderate
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Interest Rates
Bloom’s: Remembering