Chapter 7 Personal financial planning

Most installment loans are unsecured.A loan that requires collateral will usually result in higher finance charges than with an unsecured loan.

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All of the following describe consolidation loans except

• consolidation loans are used to straighten out an unhealthy credit situation.

• borrowers get money from one source to pay off several other forms of credit.

• consolidation loans are usually inexpensive.

• consolidation loans result in a lower monthly payment.

The repayment period for single-payment loans is typically shorter than for installment loans.

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All of the following institutions offer favorable rates of interest on consumer loans except

• commercial banks.

• savings and loan associations.

• credit unions.

• consumer finance companies.

Typical features of consumer loans include

• an open-end line of credit that can be used over and over again.

• credit cards or checks that may be issued with this form of credit.

• a type of credit used mainly for purchases of low-cost goods and services.

• a formal, negotiated contract that specifies both the terms for borrowing and a repayment schedule.

Wesley went to his credit union for an auto loan. He borrowed $16,000 at 7 percent interest for 5 years. What will his monthly payments be if the credit union calculates his installment loan using the simple interest method? Assume end-of-period payments.

• $309.32

• $316.82

• $324.42

• $332.13

In shopping for a loan, you should consider

• the total cost of the loan, including finance charges.

• the loan maturity.

• if you can afford to make the payments.

• all of these choices.

Federal banking regulations require that lenders disclose to borrowers the exact APR, accurate to the nearest 0.1 percent.

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It is a good idea to periodically take inventory of the consumer debt you have outstanding. A way to assess your debt position quickly is to compute your debt safety ratio by dividing your total monthly debt payments by your monthly gross pay to make sure it does not exceed 20 percent.

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Types of consumer loans include

• auto loans.

• education loans.

• personal loans.

• all of these choices.