Personal Financial Literacy Test Unit 5 Review – Flashcards
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credit
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an agreement in which the borrower buys something of value and agrees to repay the lender
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debt
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an amount of money that is owed to a bank, a credit card company, a store, or another individual
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Which of the following is not a Biblical principal as far as debt is concerned? a.Debt should be avoided whenever possible. b. Only accumulate long-term debt. c Avoid making promises to pay without a sure way to pay. d.The borrower has an absolute commitment to repay.
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B.Only accumulate long-term debt.
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Identify the strategies you can use to avoid debt. a.Earn extra income to pay for special purchases. b. Save. c. Research the best prices. d. Maintain a budget. e. Be disciplined and only buy what you can afford. f. Pay with credit cards, instead of cash. g. Plan how you will spend your money.
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a.Earn extra income to pay for special purchases. b.Save c.Research the best prices. d.Maintain a budget. e.Be disciplined and only but what you can afford. g.plan how you will spend your money. Choose all that apply.
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Because debt ruins your credit score and it can take away a lot of your money.
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List at least two reasons why a good steward should avoid debt.
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True
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Credit is the agreement to repay a lender for buying something. T/F
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Karina had an emergency fund saved. However, when she had to stay in the hospital, the bills added up to about $1,000 more than she had saved. She decided to use her credit card to pay for the remaining hospital bills. Was Karina using credit responsibly and being a good steward? Y/N
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yes
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Annual Percentage Rate; the yearly interest rate a credit card company charges to borrow money
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APR
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cash borrowed from a credit card account, for which cash advance the credit card company charges fees and higher interest rates
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cash advance
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maximum amount of money that an individual is authorized to use
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credit limit
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interest and fees charged for making purchases using a credit card
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finance charges
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a period of time before the credit card company starts charging interest
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grace period
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the least amount of money that must be paid at the end of a month
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minimum payment
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the interest rate one is charged for one payment period, a rate that is usually the APR divided by twelve
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periodic rate
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the amount owed at the end of the previous billing period
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previous balance
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the statement that federal law requires a credit card company to provide in order to explain their terms
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Truth in Lending Disclosure
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If an individual pays the minimum payment each month, she will quickly pay off her credit card. T/F
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false
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Mario has a remaining balance of $1,300 on his credit card. His credit card has an APR of 20 percent. How much will he pay in interest in one month? a.$20.00 b.$260 c.$21.67 d.$16.00
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C. $21.67
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In two to three sentences, describe how making minimum payments on credit card balances increases the total cost and is not in accordance with being a good steward.
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Because interest is charged and you go into debt. So because you would be in debt more of your money would be going to pay it off than what would have been if you had paid the maximum payments instead.
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If an individual has a balance on her credit card, but would like to pay less money in the long run, she should _____. a.make the minimum payment every month b.talk with her credit card company about removing her annual fee c.pay as much as possible each month d.close her account and transfer her balance to a different credit card
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C.Pay as much as possible each month.
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D. Period of time before the credit card company starts charging interest
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The grace period is the _____. a.maximum amount of money you can charge on the credit card b.time before the credit card company starts charging late fees c.least amount of money that must be paid at the end of a month d.period of time before the credit card company starts charging interest
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B.APR
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What is the most important factor to consider if an individual expects to carry a balance on his credit card from time to time? a.annual fee b.APR c.late fee d.over-the-limit fee
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a report prepared by a credit bureau that shows details of an individual's credit history; used by a lender to determine whether an individual is creditworthy
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credit report
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a number that lenders look at to see if an individual is creditworthy; also called a FICO score
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credit score
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having an acceptable credit rating; considered responsible to borrow money
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creditworthy
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a request for a person's credit report
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inquiry
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equal payments usually made over several years
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installments
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the bank or company that lends money on the condition that it will be paid back
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lender
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a type of credit or promise to pay for services, such as phone, electricity, and water
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service credit
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A.Credit card B.Installment account C.Loan E. Service credit
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Choose all that apply. Select each type of credit. a.credit card b.installment account c.loan d.automatic credit e.service credit
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C.a report prepared by a credit bureau that shows details of an individual's credit history
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A credit report is a _____. a.written paper from past creditors recommending an individual for more credit b.computer-generated number that tells if a person is creditworthy c.a report prepared by a credit bureau that shows details of an individual's credit history d.statement that lists how much you owe on your credit accounts
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a.visit the official web site and complete the necessary steps
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To obtain your credit report, you should _____. a.visit the official web site and complete the necessary steps b.write to the credit bureau asking for a report c.complete a lengthy form at the bank and give it to a customer service representative d.call a credit card company for a copy
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1.How resposible you are. 2. Living Expenses 3.Money owed 4.Current income
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Name at least four factors that a lender investigates when considering whether you are creditworthy.
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True
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FICO is a credit score. T/F
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Higher credit score means lower interest rate and lower income rate means higher interest rate.
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In a few sentences, explain how a credit score affects creditworthiness and the cost of credit.
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no
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Collin has a credit card bill of $3,000. He makes only the minimum payment and is always close to the limit on his credit card. Is Collin using credit responsibly? Y/N
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a legal statement that an individual is unable to pay lenders, involving a court process that protects people while they repay debts or the court removes the debts
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bankruptcy
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the amount of debt compared to income; a ratio used to determine if an individual has excessive debt
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debt-to-income ratio
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a process in which a lender tries to regain property because the borrower has not made payments
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foreclosure
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a process when a lender tries to obtain money from an individual's employer to pay an unpaid debt
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garnishment
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a claim to take and hold property until a debt is paid
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lien
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the seizing of the collateral or item that secured the loan when the debt has not been paid
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repossession
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loans with very high interest rates
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subprime lending
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yes
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Grace makes $2,200 per month. She spends $300 on credit card payments, $120 per month for a furniture purchase, and $450 on an auto loan. Does she have excessive debt? Y/N
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false
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Garnishment is when finance charges are added to your credit card account when the bill is unpaid. T/F
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d. repossession
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If a lender is not paid and they take the collateral that secured the loan, this is called _____. a.garnishment b.bankruptcy c.foreclosure d.repossession
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Fore closure,garnishment,judgement
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Name at least three consequences of excessive debt.
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a.Set goals. b.Use the debt-to-income ratio to determine if you are ready for a big purchase. c.Run a credit report annually. d.Create a budget and stick to it. e.Get rid of unnecessary expenses. f.Pay bills on time.
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Choose all that apply. Select all of the strategies for avoiding credit problems. a.Set goals. b.Use the debt-to-income ratio to determine if you are ready for a big purchase. c.Run a credit report annually. d.Create a budget and stick to it. e.Get rid of unnecessary expenses. f.Pay bills on time.
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b.Find credit counseling services.
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Jillian has a low credit score, and she will not be able to pay the minimum balance on her credit card bill next month. What should Jillian do? a.Pay her credit card balance by taking a cash advance from another credit card. b.Find credit counseling services. c.Run a credit report. d.Apply for a subprime loan.
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true
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Garnishment is what happens when a lender obtains money from an individual's employer to pay an unpaid debt. T/F
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False
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A grace period is a length of time before the credit card company starts charging late fees. T/F
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a.cash borrowed from a credit card account
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A cash advance is _____. a.cash borrowed from a credit card account b.a bonus from the credit card company for being a good customer c.a loan obtained for spending money d.using a bonus from work to pay off credit debt
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b.has equal payments each month
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An installment loan _____. a.is a loan with changing interest rates b.has equal payments each month c.can be used like a check d.is used to pay for telephone or electricity
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d.$203.23
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In the following credit card statement, what is the balance? a.$10 b.$130.23 c.5-13-2010 d.$202.23
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a.$7.04
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Manuel has a remaining balance of $563 on his credit card. His credit card company has an APR of 15 percent. How much will Manuel pay in interest for one month? a.$7.04 b.$84.50 c.$15 d.$1.25
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a.Debt should be avoided whenever possible. b.Avoid long-term debt d.Don't promise to pay without having a sure way to do so. f.The borrower has an absolute commitment to repay.
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Select all that apply. Select each of the Biblical principals regarding debt. a.Debt should be avoided whenever possible. b.Avoid long-term debt. c.Avoid credit cards. d.Don't promise to pay without having a sure way to do so. e.Avoid paying taxes. f.The borrower has an absolute commitment to repay.
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b.debt can negatively affect contributing to God's work and giving generously in the future
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Good stewards avoid debt because _____. a.debt does not cost any money b.debt can negatively affect contributing to God's work and giving generously in the future d.God prefers us to live meagerly e.it can be a distraction from prayer
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c. pay the entire balance
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Anthony received his first credit card bill. Since he wants to be a good steward and use credit responsibly, he should ____. a.make the minimum payment b.make the minimum payment plus $30, though he could pay more c.pay the entire balance d.make the payment using another credit card
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b. annual fee
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What is the most important factor to consider when selecting a credit card if you pay the balance every month on time? a.APR b.annual fee c.late fee d.over-the-limit fee
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b.the time it takes to pay off the credit card increases and the total cost increases
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When an individual makes minimum payments on a credit card instead of paying as much as possible, _____. a.the time it takes to pay off the credit card decreases and the total cost increases b.the time it takes to pay off the credit card increases and the total cost increases c.the time it takes to pay off the credit card decreases and the total cost decreases d.the time it takes to pay off the credit card increases and the total cost decreases
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a.credit report
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A report prepared by a credit bureau which shows details of an individual's credit history is called a _____. a.credit report b.credit score c.spending report d.credit history
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a.bankruptcy b.low credit score c.subprime loans d.foreclosure e.repossession
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Choose all that apply. Select all the possible consequences of excessive debt. a.bankruptcy b.low credit score c.subprime loans d.foreclosure e.repossession
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a. once a year
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How often should you get a credit report? a.once per year b.once per month c.every other year d.just before you apply for credit
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irresponsibly
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Cole has a credit card bill of $3,100. His credit limit is $3,000. Is Cole using credit responsibly or irresponsibly? responsibly irresponsibly
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d.32.5 percent
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Nicholas makes $2,000 per month. He spends $300 on credit card payments and $350 on an auto loan. What is his debt-to-income ratio? a.17.5 percent b.22 percent c.2.7 percent d.32.5 percent
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a.annual fee c.balance transfer fee d.cash advance fee e.late fee g.over-the-limit fee
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Choose all that apply. Select all the fees a credit card may have. a.annual fee b.APR c.balance transfer fee d.cash advance fee e.late fee f.overdraft fee g.over-the-limit fee
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1.Make a budget and stick to it. 2. Don't make spur-of-the-moment purchases. 3.Pay your bills on time.
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Name at least three strategies for avoiding credit problems.
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They use it to find out the money responsibility to the person wanting a loan.
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How does a lender use a credit report?
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the ability to make payments based on amount of income and other bills
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capacity
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your net worth; the value of the items you own and the cash you have available
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capital
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how responsible you have been in the past with credit; information from your credit report
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character
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a piece of property that a person promises to give to the lender if a loan is not paid
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collateral
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a person who signs a loan with another individual
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co-signer
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an interest rate that remains the same throughout the entire loan repayment period
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fixed rate
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a loan that is repaid in equal monthly payments for a specific period of time
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installment loan
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the time it will take to repay the loan
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loan repayment period
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a loan in which the individual offers collateral; if the loan is not paid back as agreed, the individual gives up the collateral to the lender
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secured loans
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a loan in which the individual does not offer collateral; sometimes called personal or signature loans
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unsecured loans
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an interest rate that may change during the repayment period
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variable rate
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d.a secured loan requires collateral and an unsecured loan does not
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The difference between a secured loan and an unsecured loan is _____. a.an unsecured loan requires a cash down payment and a secured loan does not b.a secured loan requires a co-signer and an unsecured loan does not c.a secured loan requires a cash down payment and an unsecured loan does not d.a secured loan requires collateral and an unsecured loan does not
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False
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If the principal on one loan is $1,000 more than another loan, the total cost of the loan is $1,000 more. T/F
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c.APR
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Ramon took out a car loan with an interest rate of 10 percent and paid $100 in loan application fees. What term describes the amount of interest Ramon will pay? a.down payment b.capacity c.APR d.capital
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b. A loan for $5,000 at 3.5% over a loan period of six years.
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Which of the following loans will have a higher total cost? a.A loan for $5,000 at 3.5 percent over a loan period of four years. b.A loan for $5,000 at 3.5 percent over a loan period of six years.
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Monthly Payment= P*(J/1(1-(1+J^N))
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In one or two sentences, describe how a person can calculate his monthly payment for a loan.
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c.capacity, capital, character, and collateral
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What are the 4 C's of lending? a.capacity, company, character, and co-signer b.capital, co-signer, character, and collateral c.capacity, capital, character, and collateral d.company, capital, character, and collateral
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b.visit a loan officer at a financial institution and complete an application
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If you must apply for a loan, you should _____. a.contact a broker and provide certain loan information b.visit a loan officer at a financial institution and complete an application c.call your credit card company and answer questions over the phone d.run a credit report and send it to a loan officer
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Adjustable Rate Mortgage; a mortgage that has a fixed rate for a certain amount of time and then has a variable rate that changes periodically
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ARM
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a short-term mortgage in which small payments are made until the completion of the term, at which time the entire balance is due
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balloon mortage
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an account with a financial institution used to pay taxes and insurance
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escrow
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a government-backed loan, which makes it easier for some people to qualify
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FHA loan
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a loan used to buy a home
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mortage
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Private Mortgage Insurance; insurance you must pay on most loans when you make a down payment of less than 20 percent
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PMI
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a government-backed loan for veterans
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VA loan
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false
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A traditional loan has a variable interest rate. T/F
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c. an escrow account
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An account with a financial institution used to pay taxes and insurance is called _____. a.an ARM b.a balloon loan c.an escrow account d.PMI
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traditional mortgage
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the most popular mortgage that has a fixed interest rate and a loan period of thirty years
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government-backed mortgages
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FHA and VA loans
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ARM
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a loan with an initial fixed interest rate that then becomes variable
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balloon mortgages
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a short-term loan with low interest rates; when the term is up, the entire balance of the loan is due
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a.APR b.interest rate d.loan period e.fixed or variable rate
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Choose all that apply. Select each of the factors you should consider when shopping for a mortgage. a.APR b.interest rate c.cost of homeowner's insurance d.loan period e.fixed or variable rate f.property taxes
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Down payment,closing costs, taxes
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List at least three of the costs that make up a mortgage payment.
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d.$1,283.33
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What is the total monthly payment? a.$1,510 b.$1,760 c.$990 d. $1,283.33
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Free Application for Federal Student Aid; an application to obtain financial aid such as grants or student loans
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FAFSA
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money for college that you are not expected to repay; offered to students who satisfy certain criteria
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scholorship
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money used to support students with the costs of higher education
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financial aid
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the value invested in a home; the amount owed for the home subtracted from the total value of the home
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home equity
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to give temporary possession to another individual
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lease
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money awarded to a variety of students that does not need to be repaid
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grants
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a certificate that indicates who owns the car
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title
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a. home equity loan
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The type of loan that allows people to borrow money from the amount invested in their house is a _____. a.home equity loan b.financial aid c.mortgage d.home improvement loan
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True
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You should look at the APR when comparing car loans. T/F
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a.additional costs for damages to the car b.monthly payments c.mileage restrictions
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Choose all that apply. Which of these factors should you consider when deciding whether to lease a car or buy one with a car loan? a.additional costs for damages to the car b.monthly payments c.mileage restrictions d.cost of fuel
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Look at the pricing differences and choose the best plan for you.
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What can you do to figure out how much you can afford when buying a car?
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b. Complete the FSFSA
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What is the first step in applying for financial aid? a.Talk with your financial advisor. b.Complete the FAFSA. c.Apply to a college. d.Calculate the cost of college.
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a.grants c.scholarships d.student loans
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Choose all that apply. Select each type of financial aid. a.grants b.home equity loan c.scholarships d.student loans e.personal loan
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the person in charge of renting an apartment or other rental property; sometimes called a landlord
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property manger
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to take possession of and use property by paying a set amount
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rent
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True
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One upfront cost of renting an apartment is the security deposit. T/F
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Yes
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Monica graduated from high school this year and has a steady job. She feels ready to move into her own space and has $1,200 in savings. Does she have enough for a down payment to rent this apartment? Y/N
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No
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Josh has a stable job and makes $1600 per month. Does he have enough to afford the rent? Y/N
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c.to protect both the renter and the property manager
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The purpose of a lease is _____. a.to list all expenses you will have when renting b.for applying for an apartment c.to protect both the renter and the property manager d.to get a credit report to show you will be a trustworthy renter
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a.rent payment c.utility bills e.renter's insurance
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Choose all that apply. Select all of the ongoing costs associated with renting. a.rent payment b.security deposit c.utility bills d.homeowner's insurance e.renter's insurance
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1.Is your job stable? 2. Is the place you can afford safe? 3. Do you have enough income and money to pay for all of the costs?
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List at least three questions you should ask yourself to make sure you are ready to rent.
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d. Am i financially ready?
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Jake is thinking of buying a house. What's the most important question he should ask himself? a.Will I be accepted for a loan? b.How much does it cost to replace a water heater? c.What type of maintenance will I need to do? d.Am I financially ready?
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True
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A student loan is financial aid, but the money will need to be paid back once you leave college. T/F
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False
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The loan period does not affect the total cost of the loan. T/F
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d.variable rate loan
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Samantha has a loan with an interest rate of 6.67 percent now, but the rate could increase 2 percent next year. What lending term best describes this loan? a.finance charges b.fixed rate loan c.APR d.variable rate loan
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a. The four Cs of lending
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A loan officer will use _____ to determine if you will be approved for a loan. a.the four Cs of lending b.the formula, P x (J / (1 - (1 + J)N)) c.debt-to-income ratio d.a lease
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b. a balloon loan
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A short-term mortgage in which small payments are made until the completion of the term, when the entire balance is due, is _____. a.an ARM b.a balloon loan c.an escrow account d.PMI
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c.use an online calculator or the formula: P(1+R/12)N
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Serena would like to calculate the total cost of a car loan. She should _____. a.multiply the amount of the loan by the APR b.use this formula: P x (J / (1 - (1 + J)N)) c.use an online calculator or the formula: P(1+R/12)N d.call a bank and talk to a loan officer
