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Finance 3300 > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

Give three examples of inexpensive loans.

A

family; loans based on assets such as using CD as collateral; loans to finance education (from the DOE)

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2
Q

Give two examples of medium-priced loans.

A

commercial banks/credit unions; auto/home improvement loans

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3
Q

Give two examples of expensive loans.

A

retailers such as auto/appliance dealers; bank credit cards and cash advances

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4
Q

Give two examples of VERY expensive loans.

A

finance companies/payday loans; pawn shops and check cashing stores

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5
Q

What is another name for the Truth in Lending Law?

A

Consumer Credit Protection Act

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6
Q

When was the Consumer Credit Protection Act passed?

A

1969

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7
Q

What is the Truth in Lending Law/Consumer Credit Protection Act?

A

the federal law that requires creditors to disclose the APR and the finance charge as a dollar amount

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8
Q

What is finance charge?

A

the total dollar amount you pay to use credit

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9
Q

Finance charge includes

A

interest costs, service charges, credit-related insurance premiums, or appraisal fees

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10
Q

What does APR stand for?

A

annual percentage rate

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11
Q

What is APR? (2)

A

the percentage cost of credit on a yearly basis; true rate of interest, so you can compare rates with other sources of credit

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12
Q

What percent of U.S. households have no debt?

A

15%

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13
Q

What percent of U.S. households have mortgage-only debt?

A

3%

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14
Q

What percent of U.S. households have consumer-only debt?

A

45%

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15
Q

What percent of U.S. households have mortgage + consumer debt?

A

37%

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16
Q

Define term versus interest costs.

A

Longer term loans = lower payments, but more total dollar interest paid

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17
Q

Define lender risk versus interest rate.

A

Greater risk = higher cost of credit = higher interest rate

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18
Q

What are 4 ways to reduce the lender’s risk and the interest rate?

A

accept a variable interest rate; provide collateral to secure the loan; make a larger down payment up front; have a shorter loan term

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19
Q

What is simple interest? (2)

A

the dollar cost of borrowing; computed on principal, only and without compounding

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20
Q

How do you calculate simple interest?

A

interest = principal * rate * time

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21
Q

What is simple interest on the declining balance? (2)

A

interest paid only on the amount of original principal not yet repaid; principal is reduced equally each year

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22
Q

Write out the simple interest on declining balance flowchart.

A

write out slide 10 of 30

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23
Q

What is add-on interest?

A

interest calculated on the full amount of the original principal, added to the principal, and the total of both is divided by the number of payments to be made

24
Q

Write out the add-on interest flowchart.

A

write out slide 11 of 30

25
Q

What is the adjusted balance method?

A

Finance charges are calculated after subtracting payments made during the billing period

26
Q

What is the previous balance method?

A

Finance charges are calculated before payments are

made during the billing period

27
Q

Which interest method do credit card issuers usually use?

A

average daily balance method

28
Q

What is the average daily balance method? (3)

A

add your balances for each day in the billing period; divide this total by the number of days in the billing period; multiply this average by the monthly interest rate

29
Q

Write out the example of average daily balance.

A

write out slide 13 of 30

30
Q

How does inflation affect interest rates?

A

Borrowers and lenders are more concerned about the purchasing power of dollars, rather than the actual credit used - so they add inflation expectations to the interest charged

31
Q

How do taxes affect interest rates?

A

interest paid on consumer credit is not tax deductible

32
Q

What is the minimum payment trap?

A

Paying the minimum (about $40) on a $1,000 balance at 22% interest will take 6.5 years to pay off and the total payment will be $1,660

33
Q

What is credit insurance? (3)

A

the loan will only be paid off if the insured dies or becomes disabled; VERY expensive; decline it

34
Q

What is the full name of the Credit Card Act?

A

Credit Card Accountability, Responsibility, and Disclosure Act of 2009

35
Q

What are the FIRST 6 stipulations of the Credit Card Act?

A

limits APR increases in first year; stops issuers from increasing APR rates on existing balances; teaser rates must be for at least 6 months; must mail statements at least 21 days before payment is due; disclosure statement must be clear and timely; issuers must post card agreements on internet - LSTMDI

36
Q

What are the SECOND 4 stipulations of the Credit Card Act?

A

requires statements to report due dates/late fees/total costs of only making minimum payments; sets consistent due date for each month; restricts penalties for over-the-limit fees; can’t issue to card under 21 w/o cosigner

37
Q

What is CCCS?

A

Consumer Credit Counseling Services - a non-profit debt counseling service

38
Q

What is the average age of a CCCS client?

A

38

39
Q

What is the male:female CCCS client ratio?

A

43:57

40
Q

What percentage of CCCS clients are single and married?

A

31% and 48%, respectively

41
Q

What is the average debt of a CCCS creditor?

A

$20,045

42
Q

What is bankruptcy?

A

legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts

43
Q

Women account for what percentage of bankruptcies?

A

36%

44
Q

How many people declared bankruptcy in 2005?

A

2 million

45
Q

What legislation was passed in 2005 to prevent bankruptcy fraud?

A

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

46
Q

What is the average age of a bankrupt party?

A

38

47
Q

What percentage of bankrupt parties are couples?

A

44%

48
Q

(T/F) Bankrupt parties tend to be less educated than the general public.

A

False, they tend to be more educated

49
Q

What fraction of bankrupt parties have lost jobs?

A

2/3

50
Q

What percentage of bankrupt parties have serious health problems?

A

50%

51
Q

Describe Chapter 7 bankruptcy. (6)

A

submit a petition to the court that lists assets and liabilities + paying a filing fee; most (but not all) debts are forgiven; assets sold to pay creditors; some assets, like a 401k, can be kept; fresh start; most common and severe form of filing for bankruptcy

52
Q

What is the most common form of filing for bankruptcy?

A

Chapter 7

53
Q

What is the most severe form of filing for bankruptcy?

A

Chapter 7

54
Q

After Chapter 7, what will you still owe? (4)

A

certain taxes + fines; child support and alimony; educational loans; debts from willful or malicious acts

55
Q

What is Chapter 13 bankruptcy?

A

voluntary plan proposed to the bankruptcy court
for those who want to pay a portion of their debt
over a period up to 5 years

56
Q

What are the requirements for Chapter 13 bankruptcy? (4)

A

must have regular income; can’t have more than $250k in unsecured debt or $750k in secured debt; payments made to trustee who distributes money to creditors; court may allow you to keep property + pay less than full amount of debts

Finance 3300 (15 decks)

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