HDF 251 Exam #2

what are debit cards

virtual checks

APR

annual percentage rate; broad measure of the yearly cost of borrowing including both the interest rate charged and required fees on the loan; expressed as a percentage

total finance charge

total amount you will pay in interest and borrowing costs over the life of the loan; expressed as a dollar amount

main benefits and features of a checking account

liquidity, direct deposits, FDIC insurance, debit cards

credit report

summarized accounting of all credit history

credit score

tally that summarizes a person’s credit risk; based on info in credit report, 300-850

how can you get a free credit report

request it from equifax, transunion, or experian once every 12 months

revolving credit

loan can be accessed, repaid, and used again indefinitely ex. credit cards

installment credit

series of payments to lender in a set period of time ex. student loans, mortgage loans, car loans

credit card grace period

amount of time allowed between the end of your billing cycle and your payment due date to pay the bill without gaining interest; typ. 21 days

credit card fees/penalties

account set up fee, annual fee, late payment fee, over the limit fee, balance transfer fee, cash advance fee, foreign transaction fee

credit utilization

amount of outstanding credit card debt

debt snowball strategy

focus on paying off your smallest debt balance no matter the interest rate; then move onto the next 2nd smallest debt balance

debt avalanche strategy

focus on paying off the debt with the largest interest rate first; then move onto the 2nd highest interest rate debt

installment loans

borrower gets full amount upfront in single lump sum, loan is paid back in 1-5 years

secured loans

backed by collateral; ex. car loans, mortgages, pawnshop loans

unsecured loans

not backed by collateral; ex. student loans, credit cards, lines of credit

common ways to pay for college

savings bonds, taxable savings, 529 plan, CESA, scholarships, grants, loans

subsidized loans

undergrad loans for students with financial need, gov. pays interest while in college, 6 months post unenrollment borrower must start making payments and paying interest

interest rate = 5.5%

unsubsidized loans

undergrad, grad, and professional students, interest is added onto loan 6 months after graduating, no financial need needed to get

interest rate = 5.5% for undergrad 1.05% for grad and professional

PLUS loans

grad, professional, or parents of undergrad for expenses that exceed capped amounts of other federal programs, interest added on or paid in school, no financial need needed

interest rate = 8.05%

consolidation loans

allows students to consolidate all federal student loans into 1 easy to manage loan

home appreciation

the increase on a home’s value over time

closing costs

all loan and purchase fees with buying a home

comparative market analysis (CMA)

an estimate of a home’s value based on recently sold homes in the same area that are similar in size, condition, location, and features

NOT a guaranteed selling price

back end mortgage qualification ratio

the sum of payments (PITI) made on a mortgage plus all other consumer debt payments divided by household income should equal to or be less than 36% of your gross monthly income

adjustable-rate mortgage (ARM)

interest rate on loan changes periodically, typ. yearly, can increase or decrease payment

fixed rate mortgage

interest rate stays the same for the entire loan term, meaning your monthly payments remain consistent

depository financial institution

financial organization that accepts deposits from customers, such as checking and saving accounts, and may use those deposits to provide loans

nondepository financial institution

does not accept traditional customer deposits, instead it provides financial services like insurance, investments, or loans

money market savings account

combo of benefits offered by savings and checking accounts, insured, but limited to a set number of withdrawals a month

certificate of deposit

savings product purchased with 1 lump sum dollar amount, restricted withdrawals until future date called maturity date

opportunity cost

the loss of a benefit you would’ve had if you had choosen a different choice

real rate of return

inflation adjusted return

buisness risk

possibility that the company you invest in will be forced to close

credit risk

risk that a borrower will not be able to repay the loan or make required interest payments

pure risk

one that only results in an economic loss, like repairing a car or major applicance

speculative risk

situation that results in either increased money, break even, or loss of money like investing in the stock market

peril

anything that causes you to experience a loss

hazard

a situation or condition that increases the probability of a peril occurring

100/25/75

100 = max amount insurance will pay in medical expenses for someone other than you or family if you cause an accident

25 = total amount insurance will pay for all medical expenses for others involved in the accident

75 = max amount insurance will pay to repair someone’s personal property that you damage

HMO

health maintenance organization; popular managed care plan option; restricts coverage to doctors and hospitals located in a specific geographical area

PPO

preferred provider organization; popular fee-for-service option; restricts coverage to doctors and hospitals who belong to an insurance network

deductibles

amount that insured individual has to pay before insurance will contribute any funds towards medical expenses

term life insurance

provides death benefit only of insured dies before a predetermined age

cash value life insurance

blends terms life insurance with savings option, can borrow the cash value of the policy and can cancel policy and get access to unused cash; lifelong coverage

disability income insurance

provides income replacement if you are unable to work due to an illness or injury

long term care insurance

helps pay for ongoing care and assistance with daily activities when someone can no longer care for themselves independently