ITB chapter 18 vocab

What is credit?

The privilege of using someone else's money for a period of time.

What does finance charge refer to?

The total dollar cost of credit, including interest and all other charges.

What is a down payment?

Payment of part of the purchase price.

What is an installment loan?

An agreement to make monthly payments in specific amounts over a period of time.

What is a promissory note?

A written promise to repay based on a debtor's excellent credit history.

What is collateral?

Property that is used as security.

What is a cosigner?

Responsible for payment of the note if you do not pay as promised.

What does credit rating signify?

A person's reputation for paying bills on time.

What is interest?

The cost of borrowing money.

What is the annual percentage rate (APR)?

A disclosure required by law that states the percentage cost of credit on a yearly basis.

What is a credit application?

A form on which you provide information needed by a lender to make a decision about granting credit.

What is a credit bureau?

A company that gathers information on credit users.

What is a statement of account?

A record of the transactions completed during the billing period.

What does a credit counselor do?

Discusses and suggests actions to take to reduce spending and eliminate credit difficulties.

What is bankruptcy?

The legal process of reducing or eliminating an amount owed.

What is installment credit?

Commonly used for large purchases such as a car, RV, or boat.

What occurs when signing a promissory note?

It signifies the commitment to a loan.

What is an advantage of using credit?

Convenience.

True or False: The principal of a loan is the total amount of interest that will be paid.

False.

True or False: Interest rates are stated on the basis of one year even if a loan is for several years.

True.

What is the most valuable number to consider when comparing credit among various borrowing sources?

Annual percentage rate (APR).

How much interest will be paid on a $7,000 loan for 3 years at 6%?

$1260.

A reputation for paying bills on time relates to a person's __________.

Character.

What is the main activity of a credit bureau?

Report information on the use of credit by consumers.

What basis can a person be denied credit?

Income.

What federal law provides protection when an error occurs on a monthly statement?

Fair Credit Billing Act.

The legal process of reducing or eliminating an amount owed is called __________.

Bankruptcy.

List and explain the three C's of Credit.

Capital- things that you value that you own; Character- how responsible you are to make payments on time; Capacity- your income and how capable you are to make payments.