Understanding Credit and Loans

These flashcards cover key concepts related to credit, loans, and financial behavior from the lecture notes.

What are two ways the government encourages behavior change related to purchases?

Rebates and taxes.

What is a rebate?

Money back on specific services to encourage purchase changes.

What is a common example of a tax designed to change behavior?

Carbon tax.

What is a credit?

A sum of money that a credit issuer makes available to a borrower.

Who are examples of credit issuers?

Banks and other financial institutions.

What is consumer credit used for?

To buy goods and services and pay for them later.

What is a cash advance?

Borrowing money that must be paid back.

What is a line of credit?

A lump sum that's preapproved and can be used as needed.

What is a rent-to-own contract?

An agreement to buy an item over time, often with taxes included in the price.

What does a personal loan typically involve?

A loan offered by banks or finance companies for various purposes.

Why is it important to shop around for loans?

To find the best rates and terms available.

What do credit card applications require?

Personal information, employment details, and agreement to terms.

What impacts a borrower's credit score?

Income, debt level, payment history, job stability, and age.

What behaviors are associated with excessive debt?

Using credit to pay debts, borrowing from friends or family, and avoiding communication about debts.

What is the maximum legal interest rate on loans in Canada?

30%.

What should you do if you can't make a payment?

It's better to make at least the minimum payment than to make no payment.

Why should payday loans be avoided?

They often have high interest rates.

What do credit cards typically allow before charging interest?

A grace period of 21 days to pay the balance.

What is a student loan?

A student loan is a type of loan specifically designed to help students pay for their education-related expenses, such as tuition, fees, and living costs. These loans often come with lower interest rates and flexible repayment options.

What are the two main types of student loans?

The two main types of student loans are federal student loans, which are funded by the government and typically offer more favorable terms, and private student loans, which are issued by banks or other financial institutions and may have varying terms.

What is the typical repayment term for a student loan?

The typical repayment term for a federal student loan ranges from 10 to 25 years, depending on the loan type and repayment plan chosen by the borrower.

What is a car loan?

A car loan is a type of secured loan used to finance the purchase of a vehicle. The vehicle itself serves as collateral, meaning the lender can repossess it if the borrower fails to make payments.

What factors affect car loan interest rates?

Car loan interest rates are affected by several factors, including the borrower's credit score, the loan term length, the amount financed, and the lender's policies.

What is the importance of making a down payment on a car loan?

Making a down payment on a car loan lowers the amount borrowed, which can result in lower monthly payments and less interest paid over the life of the loan. It also demonstrates to lenders that the borrower is financially responsible.

What are the differences between secured and unsecured loans?

Secured loans are backed by collateral (e.g., a car or house), which reduces the risk for lenders. Unsecured loans, such as personal loans, do not require collateral, but typically come with higher interest rates due to the increased risk.