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Exam 7: Using Consumer Loans

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Question 1

Multiple Choice

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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.
D) There is no limit on the number of loans one can have.
E) Interest may be tax deductible.

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Question 2

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Consolidation loans are used to purchase new furniture and appliances when many items are needed at the same time.

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Question 3

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If the add-on method is used to calculate a finance charge of $150.80 on a $2,200 loan,the amount to be repaid is $2,200.

Sales finance companies

Most loans made by consumer finance companies are for larger amounts and are made to low risk borrowers.

GMAC is an example of a captive sales finance company.

A characteristic of consumer loans is that they

Commercial banks are generally more selective in granting loans than finance companies.

The student loans with the lowest rates of interest and the best loan terms are the PLUS loans.

Mike and Amanda have been reviewing their financial statements.Using the following information,they have asked you to determine their debt safety ratio and advise them about assuming more debt in the future.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -When the interest rate on savings is higher than the interest rate on a loan,it is less expensive to [borrow | use savings] to make a purchase.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -A [sales finance company | captive finance company] purchases notes drawn up by sellers of typically big-ticket items.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -When interest rates are falling,you would prefer a [fixed-rate | variable-rate] loan.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -The longer the loan maturity,the [lower | higher] the monthly payments will be.

Student loans are made by banks and other financial institutions,but students apply for these loans through their universities.

The student loans with the lowest rates of interest and the best loan terms are the PLUS loans.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -Loan repayment of a [Perkins | PLUS] loan would not begin until a student is out of school.

The majority of loans made by savings and loan associations are ____ loans.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -Consolidation loans are generally [inexpensive | expensive].

A note is the