Personal Finance Exam 2

planned

No collections will have to be made

Personal

Each individual per individual calling

proportionate

a sum in keeping with individuals income

priority

on the first day

periodic

every week

Debt Snowball Method

A debt repayment strategy where you pay off your smallest debts first, regardless of interest rate. As each small debt is paid off you gain momentum. List from smallest to largest. make minimum payments on all debts. When smallest debt is paid off roll into the next and repeat this process

non Housing Debt revolving credit

A type of credit that can be used repeatedly up

to a certain limit as long as the account is open and payments are made on time

non Housing Debt installment credit

A type of credit that has a fixed number of

payments, in contrast to revolving credit

Direct Subsidized Loans

Based on financial need, you have to demonstrate financial need. The government pays the interest while you are in school. Lower long term cost if interest does not accumulate during school balance won’t be as big.

Direct Unsubsidized loans

Loans anyone can qualify for anyone. Government does not pay your interest any time. Loans are from US department of education to undergraduates and graduates. This Helps pay for college and career schools.

character

refers to a borrower's reputation. Actually, lenders are not really interested in your character beyond whether they think you will follow through on your commitment to repay the loan. If a lender cannot establish your character via a credit report and/or personal knowledge, they will require a cosigner who meets the requirements.

capacity

measures a borrower's ability to repay a loan by comparing monthly income against monthly recurring debts. This is often evaluated using the debt-to-income ratio, a personal finance measure that compares your debt payments to the income you generate.

capital

is that money the borrower puts toward a potential investment or purchase. A large cash down payment by the borrower will lessen the chance of default. Also, the potential borrower’s net worth will influence a lender since a higher net worth lessens the possibility of default.

collateral

helps to secure a loan for example, typical collateral for an auto loan is the

vehicle itself, which can be repossessed by the lender in case of a default.

conditions

a loan determine the lender’s desire to make the loan. These include the

interest rate, amount to borrow, the length of time for payback, and other terms.