ITB test ch 18

What is the definition of credit?

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

What is a finance charge?

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 does a promissory note represent?

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

What is collateral?

Property that is used as security.

What role does a cosigner play?

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

What is credit rating?

A person's reputation for paying bills on time.

What does interest refer to?

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 information is provided in a credit application?

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

What does a credit bureau do?

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 is a credit counselor?

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 are large purchases, such as cars, commonly bought using?

Installment credit.

What occurs when signing a promissory note?

You are using 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.

What is the formula necessary to calculate interest?

Principal, Interest, Time.

What does APR represent?

The annual cost of borrowing money, including the interest rate and any associated fees.

What is an Amortization Schedule?

A table that outlines the periodic payments of a loan, showing the breakdown of principal and interest paid in each installment until the loan is fully repaid.

What are the main items reported on a statement of account?

Record of transactions, balance when due, amounts charged, current balance, minimum balance, and next payment.

What are the three C's of Credit?

Capital, Character, and Capacity.

What are the major types of consumer credit?

Trade credit, sales, installment, and loan.

What are potential drawbacks of buying on credit?

Fees, credit drawbacks, and service charges.

How does time affect the amount of interest that you pay?

The longer you wait, the higher the interest.