Finance Chapter 4 Review Flashcards
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Questions and Answers

What is an Annual Fee?

  • Cost of borrowing money on an annual basis
  • Home loan with insufficient monthly payments
  • Fee charged by a credit card company for the use of their credit card (correct)
  • Temporary interest rate to attract customers

    • What does Annual Percentage Rate (APR) refer to?

    Cost of borrowing money on an annual basis

    What is a Balloon Mortgage?

    Home loan with insufficient monthly payments leading to a lump sum payment

    What does Credit refer to?

    <p>Money loaned</p> Signup and view all the answers

    What is a Credit Card?

    <p>Tool used to finance a purchase</p> Signup and view all the answers

    What is a Credit Limit?

    <p>The maximum amount that a lender will extend to a customer</p> Signup and view all the answers

    What is a Debit Card?

    <p>Type of card used to make purchases that withdraws money from a checking account</p> Signup and view all the answers

    What is Debt Consolidation?

    <p>Act of combining all debts into one monthly payment</p> Signup and view all the answers

    What is a Debt Snowball?

    <p>Method of debt repayment organized from smallest to largest balance</p> Signup and view all the answers

    What is Depreciation?

    <p>A decline in the value of property</p> Signup and view all the answers

    What is a Finance Charge?

    <p>Total dollar amount paid to use credit</p> Signup and view all the answers

    What does it mean to Foreclose?

    <p>Process by which a mortgage holder sells a property due to non-payment</p> Signup and view all the answers

    What is a Grace Period?

    <p>Time period to pay the full credit balance without finance charges</p> Signup and view all the answers

    What is a Home Equity Loan?

    <p>Credit line borrowing against the equity in a home</p> Signup and view all the answers

    What is an Introductory Rate?

    <p>Temporary low APR to entice credit card applications</p> Signup and view all the answers

    What is a Lease?

    <p>Long-term rental agreement</p> Signup and view all the answers

    What is a Loan Term?

    <p>Length of time to pay off a loan</p> Signup and view all the answers

    What is a Myth?

    <p>Information passed on but not true</p> Signup and view all the answers

    What is a Paradigm?

    <p>Your belief system or way of perceiving things</p> Signup and view all the answers

    What is a Tax Deduction?

    <p>Expense a taxpayer can deduct from taxable income</p> Signup and view all the answers

    What is Cash Advance?

    <p>Loans with high charges (B)</p> Signup and view all the answers

    Debt consolidation is wise?

    <p>False (B)</p> Signup and view all the answers

    You need a credit card to rent a car?

    <p>False (B)</p> Signup and view all the answers

    Buying used cars is a good way to minimize depreciation?

    <p>True (A)</p> Signup and view all the answers

    The typical millionaire drives new cars?

    <p>False (B)</p> Signup and view all the answers

    The elderly are the number one target of credit card companies?

    <p>False (B)</p> Signup and view all the answers

    Co-signing a loan is a way to help out a friend or relative?

    <p>False (B)</p> Signup and view all the answers

    The lottery is a tax on the poor and on people who can't do math?

    <p>True (A)</p> Signup and view all the answers

    Home equity loans are a good way to consolidate debt?

    <p>False (B)</p> Signup and view all the answers

    It is never wise to take out an ARM or balloon mortgage?

    <p>True (A)</p> Signup and view all the answers

    Paying off the balance of your credit card each month is an acceptable use of credit?

    <p>False (B)</p> Signup and view all the answers

    The best way to teach teenagers about money is to get them a credit card?

    <p>False (B)</p> Signup and view all the answers

    It is best to attack your debt by consolidating many payments into one?

    <p>False (B)</p> Signup and view all the answers

    Carrying cash results in an increase of spending versus paying with credit?

    <p>False (B)</p> Signup and view all the answers

    Why do people go into debt when they know they will have to pay more?

    <p>Not willing to wait, don't feel the pain when using credit, instant gratification</p> Signup and view all the answers

    Why are teens such a major target of the credit card industry?

    <p>Adult market is saturated, brand loyalty</p> Signup and view all the answers

    How do cash advance and car title companies keep people in the cycle of debt?

    <p>Located where there are poor people, give you what you want when you want it</p> Signup and view all the answers

    Why is it better to buy a used car instead of a brand new vehicle?

    <p>New cars depreciate value faster</p> Signup and view all the answers

    Why does debt consolidation typically not save money?

    <p>Interest rate is either the same or higher</p> Signup and view all the answers

    Explain how the debt snowball works.

    <p>Pay off debts from lowest to highest and reallocate minimum payments to the next debt</p> Signup and view all the answers

    What are the five steps to get out of debt?

    <p>Quit borrowing, save money, sell something, work part-time, use the debt snowball</p> Signup and view all the answers

    How can lending money cause problems in a relationship?

    <p>May strain or destroy the relationship, creates imbalance</p> Signup and view all the answers

    Study Notes

    Credit and Loans Terminology

    • Annual Fee: A charge by credit card companies for account maintenance or usage.
    • Annual Percentage Rate (ARM): The cost of borrowing expressed annually, including interest and fees.
    • Balloon Mortgage: A mortgage with lower monthly payments; a lump sum payment is due at the end to settle the full debt.
    • Credit: Funds that are borrowed, with the expectation of repayment.
    • Credit Card: A financial instrument that allows users to purchase goods or services by borrowing against a set limit.
    • Credit Limit: The highest amount a lender will allow an individual to borrow at any one time.
    • Debit Card: A banking card that deducts money directly from a checking account for purchases.
    • Debt Consolidation: Merging multiple debts into a single payment, often extending repayment terms.
    • Debt Snowball: A strategy for paying off debts, focusing on the smallest debts first to build momentum.
    • Depreciation: A decrease in the value of an asset over time.

    Fees and Payments

    • Finance Charge: The total cost incurred for using credit, expressed in dollar terms.
    • Foreclosure: A legal process where a lender sells a property to recover unpaid mortgage loans.
    • Grace Period: A designated time frame allowing a borrower to pay off credit without incurring interest.
    • Home Equity Loan: A loan secured by the equity in a borrower's home, allowing access to funds.

    Credit and Loan Products

    • Introductory Rate: A temporary low interest rate offered to attract new credit card users.
    • Lease: An agreement for renting property or equipment over a prolonged period.
    • Loan Term: The designated time period within which a borrower must repay a loan.

    Myths and Misconceptions

    • Myth: Common false beliefs that can mislead individuals financially.
    • Paradigm: Refers to personal belief systems that shape perceptions and decisions about finance.

    Tax and Financial Management

    • Tax Deduction: Expenses subtracted from taxable income, like mortgage interest or charitable contributions.
    • Cash Advance: A service that allows borrowing against a credit limit, often with high fees involved.

    Understanding Debt and Financial Habits

    • Co-Signing: Agreeing to take responsibility for another individual's loan obligation, which may cause financial strain.
    • Consumer Debt Awareness: Recognizing that the allure of convenience through credit can lead to financial difficulties and poor spending habits.

    Strategies and Recommendations

    • Buying Used Cars: A strategy to minimize financial loss due to depreciation, as new cars lose value quickly.
    • Debt Consolidation Effectiveness: Often does not lead to savings; interest rates may be similar or higher.
    • Debt Snowball Method: A systematic approach to paying off debts from smallest to largest, reinforcing positive behavior in financial management.

    Lifestyle Choices and Spending Patterns

    • Instant Gratification: The tendency to prioritize immediate pleasure over long-term financial health, which can lead to debt.
    • Targeting Younger Consumers: Credit card companies focus on teens due to their potential for brand loyalty and relatively untapped market in adult borrowers.

    Building Healthy Financial Relationships

    • Lending and Relationships: Offering loans to friends or family can create underlying tensions and alter dynamics, leading to potential conflicts.

    Steps to Financial Freedom

    • Getting Out of Debt: Recommended actions include stopping borrowing, saving, selling assets, working extra hours, and implementing the debt snowball approach.

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    Test your knowledge of key financial terms with these flashcards from Chapter 4. Each card focuses on important concepts such as annual fees, APRs, and mortgages. Perfect for students looking to reinforce their understanding of finance.

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