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Exam 7: Choosing a Source of Credit: The Costs of Credit Alternatives

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Question 21

True/False

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If creditors give you no credit for payments made during the billing period,it is called the adjusted balance method.

A) True
B) False

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Question 22

Multiple Choice

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Which method of payment is likely to be the least expensive in the long run?

A) bank credit card
B) check written on a home equity line of credit
C) cash
D) store credit card
E) cash advance on a Visa credit card

F) A) and B)
G) B) and E)

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Question 23

Multiple Choice

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What is (are) the signal(s) of potential debt problems?

Shelly Sanders gets a loan for $3,000 and repays the loan in 12 monthly payments of $258 per month.Under the rule of 78s,what is the amount of interest included in her first payment?

Chuck Spencer wants to borrow money for three years to purchase a new car.He has been offered a seven percent fixed rate loan and also a variable rate loan that has an initial rate of five percent.By choosing the variable rate loan,Chuck is reducing the lender's risk by:

If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10,what is her total cost of credit?

_____________ families rely heaviest on student loans to finance college.

Both Chapter 7 and Chapter 13 bankruptcy are considered an easy way out of debt.

Patricia Newton is going to buy a new car,and she needs to apply for a loan to cover the purchase.She knows she can get a loan for up to 6 years,but she would prefer a shorter-term loan.She selects a 4-year loan.Patricia reducing her lender's risk by:

If you default on your automobile loan:

You can often obtain medium-priced loans from commercial banks and credit unions.

Which lender is likely to ask you to write a check for $115 before granting you a $100 loan?

The Consumer Credit Counseling Service will refinance all of your existing debts for you.

You can deduct interest paid on consumer loans for state and federal income tax returns.

Randy Ice starts the month with a balance on his credit card of $1000.On the 10^th day of the month,he purchases $200 in clothes with his credit card.On the 15^th day of the month he makes a payment on his credit card of $500.The average daily balance for the month including the new purchase is $883.The average daily balance for the month excluding the new purchase is $750.The bank charges 1.5 percent per month and uses the average daily balance excluding new purchases method.What would Randy's finance charges be for the month?

If creditors give you no credit for payments made during the billing period,this is called the:

The most commonly purchased type of credit insurance is credit life insurance.

Under the rule of 78s,loans for a year or less usually do not allow for a finance charge rebate.

Gary Simpson notices that his neighbor has a brand new Ford F150 truck parked in the driveway.Even though his current car is fine,Gary decides that he needs a new car and goes out and purchases a Hummer with a six-year loan.Which one of the answers best explains Gary's spending?

Anyone overburdened by credit obligations can phone,write,or visit a Consumer Credit Counseling Service office.