Personal Finance Chapter 7

Home equity loan Before-tax cost (1 – marginal tax rate)This equation solves for the after-tax cost of what?
Bridge Loan Provides short term funding until longer term or additional financing is found
Installment loan calls for repayment of both interest and principal at regular intervals, with the payment levels set so that the loan expires at a preset date.
Secured loan guaranteed by a specific asset which typically lowers the rate of the loan. If you can’t meet the loan payments, the asset can be seized and sold to cover the amount due.
Variable rate loan loan where the interest varies based on the market interest rate.
Recourse clause The clause in a loan contract defining what actions a lender can take to claim money from a borrower in the case of default
Insurance agreement clause A loan requirement of a borrower to purchase credit life insurance that would pay off the loan in the event of the borrowers death
Acceleration clause A loan requirement stating that if the borrower misses one payment, the entire loan comes due immediately.
Deficiency payments clause A loan requirement stating that if you default on a secured loan, not only can the lender repossess whatever is secured, but if the sale of that asset doesn’t cover what is owed, you can also be billed for the difference
Default The failure of a borrower to make a scheduled interest or principal payment
Note outlines the legal obligations of both the borrower and the lender
Security Agreement identifies who retains control over the item being purchased.
After tax cost _____ ___ ____= before tax cost ( 1- marginal tax bracket)
Student Loans _____ _____ are a smart source of financing for college loans because they are federally subsidized loans with low interest rates.
Rule of 78 Rule to determine what proportion of each loan payment goes towards paying the interest and what proportion goes toward paying the principle.
original balance What balance is used to calculate interest charges using the Add-on-Method for installment loans?
single payment loan Loan that is paid back in one lump-sum; balloon
prime rate the rate banks charge to their most creditworthy customers.
APR The true simple interest rate paid over the life of a loan. It’s a reasonable approximation for the true cost of borrowing, and the Truth in Lending Act requires that all consumer loan agreements disclose it in bold print.
Low Family, home equity loans, cash value life insurance loans.Low or high rates?
95% How much can one borrow (in terms of a percentage) of insurance policy’s surrender value?
Chapter 7 _____ _ Bankruptcy…Can eliminate debts and begin again, “Means test”, Most debts wiped out—not child support, alimony, student loans, and taxes, Trustee collects, sells all nonexempt property, Must complete credit counseling course.
Chapter 13 _______ _ Bankruptcy…In Must have regular income, Secured debts under $1,010,650 (2007), Unsecured debts under $336,900 (2007), For the individual—relief from harassment of bill collectors, For creditors—controlled repayment with court supervision.
Loan Disclosure Statement A ____ ________ _______ is required by the Truth in Lending Act and lists APR, Finance charges, total payments, and amount financed.
Simple interest loan method _____ ____ ____ _____principle x interest rate x time
True True or False – With a discount method single-payment loan, the entire interest charge is subtracted from the principal before you receive the money, and at maturity you repay the principle
True True or False – The annual percentage rate is the simple percentage cost of all finance charges over the life of the loan on an annual basis.
False True or False – Loans using the add-on method are a relative bargain and should be sought out.
True True or False – Payday loans are a dangerous way to borrow money, and they charge an annual interest rate of almost 400%
Cost What gives home equity loans a primary advantage over other forms of loans?
college students Stafford Loans, Direct Plus Loans, and Perkins Loans are three common loans available for what group primarily?
Automobile Loans What is used in a car loan to lure customers into the store or to help move slow moving models?
Credit Union Loans What’s cheaper–credit union loans or retail store loans?
strong credit rating What is the primary key to getting the best rate possible when borrowing?
Debt limit ratio What ratio measures the percentage of your income taken up by nonmortgage debt payments?total mortgage debt payments/total monthly take-home pay
4 years According to the debt resolution rule, all consumers should be capable of paying off all consumer credit within a certain time period, with the exception of financing a home or education. How long is that time period?

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