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Flashcards in Test 3 Deck (66):
1

Someone is willing to loan you money-called principle- in exchange for your promise to pay it back, usually with interest

Credit

2

The loan amount

Principle

3

The amount you pay to use someone else’s money

Interest

4

APR

Annual percentage rate

5

The amount it costs you a year to use credit

APR

6

A yearly charge for the privilege of using a credit card

Annual fee

7

The dollar cost of using credit, which is calculated by a lender

Finance change

8

A charge for setting up a loan, usually associated with home loans

Origination fee

9

How long the loan lasts

Loan term

10

The longer the loan term, _______

The greater the costs of credit

11

4 Advantages of credit

1. Access to cash in an emergency
2. The ability to use it now
3. Safety and convenience
4. Earn bonus points or miles

12

4 disadvantages of credit

1. Can lead to overspending
2. Future income is tied up
3. Reduces the amount of comparison shopping
4. Credit purchases may cost more than cash purchases

13

Where do you get credit?

Banks and credit unions
Auto dealers
Department stores
Colleges
Financial institutions
Federal government

14

Advantages of credit cards

Easy and convenient to use
Get cash when you want it
No loan term

15

Is a lower or higher APR good?

Lower, some can go as high as 20%

16

Tips for smart credit card use

Look for cards with no annual fee, a grace period, and a low APR

17

Allowed to make small payments, but the rest of the balance is compounding at the card’s APR

Minimum payment

18

How do you avoid interest charges on your credit card?

Pay your balance off in full

19

Most start about $500, but can go much higher

Credit limit

20

Money issued to students to pay for college, usually at a low interest rate

Student loans

21

What percentage rate are most student loans

2-8%

22

Money issued to future home owners

Mortgages

23

A maximum of ____ of your net income should go towards all of your loan payments (not including mortgage)

20%

24

How long are mortgage loans typically

15-30 years

25

A maximum of ____ of your net income should go toward paying your mortgage loan

33%

26

Things to look for when applying for credit

The APR
The loan term
Maximum amount of the loan
Minimum payment amount
Any annual or upfront fees
Additional fees
Amount of income you need to qualify

27

Your credit history, a record of your personal financial transactions

Credit record

28

What does your credit record do?

Potential lenders will thoroughly examine it and many employers check it when making hiring decisions

29

How to build good credit

Pay bills on time
Don’t bounce checks
Make regular deposits to savings account
Pay your credit card bills on time
Have a parent co-sign

30

The entire amount of money you owe to lenders

Debt

31

How do you get out of debt

Spend less money than you earn, the to make the minimum required payments and use the money left over to pay off the loans with the highest interest rate, and talk to a nonprofit credit counselor

32

What percent of Americans live paycheck to paycheck

70%

33

A legal process that allows someone deeply in debt to create a plan to get out of it

Bankruptcy

34

Allows to erase most of your debt. To qualify, you typically must be unemployed or have a very low income. Must go to financial counseling

Chapter 7 bankruptcy

35

Allows you to pay back some of your debts with more time. A court typically oversees the repayment plan to ensure accountability

Chapter 13 bankruptcy

36

First ever credit card name

Diner club

37

Examples of banks and credit unions

Credit cards, car loans, personal loans and home loans

38

Examples of auto dealers

Financing for cars

39

Examples of department stores

Credit cards with discounts to their stores

40

Examples of colleges

Student loans

41

Examples of financial institutions

Payday loans, money tree

42

Examples of federal government

Business loans

43

How does bankruptcy affect lenders

They must absorb loan losses they can’t recover by raising rates on other loans and services

44

How does bankruptcy affect borrowers

Responsible borrowers must pay higher rates to help lenders recover losses on bad loans

45

How does bankruptcy affect people who declare it

Their actions remain on their credit records for up to 10 years and it’ll be way harder and more expensive to borrow money

46

Four advantages of bankruptcy

Debts are erased
Exempted items are allowed
Certain incomes are unaffected
Cost is small

47

Disadvantages of bankruptcy

Cloud of credit
Property is lost
Some obligations remain
Some debts can be reaffirmed
Co-signers may have to pay

48

Items exempted from bankruptcy

Equity in home
Motor vehicle
Clothing
Animals
Musical instruments
Jewelry
Crops

49

Obligations not exempted from bankruptcy

Child support
Alimony
Income tax
Student loans

50

Protection against large scale financial loss

Insurance

51

The payment you make to an insurance company in exchange for it’s promise of protection and help

Insurance premium

52

The amount of the loss you just pay out of your own pocket before the insurance company begins to reimburse you

Deductible

53

The higher the deductible, the lower the _____

Premium

54

Things that will affect your insurance

Personal driving record
Car type (more doors and slower it is, the cheaper)
If you’re single and under 25 you pay more
Geographic location
Good grades
Take drivers ed
Males pay more
Distance you drive

55

Pays for bodily injury to other people and damage to property

Liability coverage

56

Protects you, your family and anyone riding with you in your car

Medical payments

57

Protects you if you get in an accident with someone without insurance

Uninsured motorist

58

Types of auto insurance

Liability coverage
Medical payments
Uninsured motorist

59

Pays to repair your car if it’s damaged in an accident by colliding with another car

Collision

60

Protects you from everything except a collision

Theft, hail, flood, vandalism ect.

Other than collision

61

Pays the medical bills in case you or your family members become sick or injured

Health insurance

62

How long can you stay on your family’s insurance

Until 26

63

Protects your material possessions such as clothes, stereo, TV, appliances, furniture, bike, computer

Property insurance

64

Protects people who depend on you financially in the event of your untimely death

Life insurance

65

What percent of people under the age of 19 will have their identity stolen?

8%

66

Fastest growing white collar crime in America?

Identity theft