Questions and Answers
Which of the following is an example of closed-end credit?
When compared to __________________, ___________________ is often more difficult to obtain.
closed-end credit; open-end credit
____________________________ is more common and has a _______________ interest rate charged by most lenders.
closed-end credit; lower
All of the following are reasons mentioned for why homeowners obtain home equity loans, except:
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All of the following are factors that individuals should consider before obtaining a home equity loan, except:
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What is Landon's home equity credit limit available if the market value of the home is $200,000 and he owes $90,000?
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What is Rachel's debt ratio if her net worth is $132,250 and liabilities equal $38,650?
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What does Lexi's debt ratio indicate if her net worth is $110,465 and liabilities are $24,735?
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According to the video, the quickest way to improve your debt-to-equity ratio is:
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Which of the following is mentioned as the top identity theft issue?
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What should you do if your identity is stolen according to the video?
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Study Notes
Closed-End and Open-End Credit
- Closed-end credit includes specific loans such as home mortgages and automobile loans.
- Open-end credit is generally more challenging to secure since it relies on the borrower's promise to repay, unlike closed-end credit.
- Closed-end credit typically has a lower interest rate compared to open-end credit.
Home Equity Loans
- Home equity loans can be used for various purposes, including remodeling projects, paying family medical expenses, covering educational costs, or reducing debts.
- Factors to consider before obtaining a home equity loan include interest rates, lender fees, high annual fees, and the costs and risks associated with the loan.
- The location of the home is not a primary factor mentioned in relation to obtaining a home equity loan.
Calculating Home Equity and Debt Ratios
- For an individual with a home valued at $200,000 and an existing mortgage of $90,000, the available home equity credit limit is calculated as $40,000.
- Debt ratio is computed by dividing liabilities by net worth; for Rachel, this ratio is 0.29, indicating her financial leverage.
- Lexi’s debt ratio is 0.22, meaning for every $1 of net worth, she has 22 cents in liabilities.
Improving Debt-to-Equity Ratio
- The quickest way to enhance your debt-to-equity ratio is by paying off existing debts.
Identity Theft Awareness
- The most common identity theft issues involve credit card fraud, government documents, and phone or utilities fraud.
- If identity theft occurs, it is crucial to notify creditors and contact law enforcement to address fraudulent activity.
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Description
This quiz explores the differences between closed-end and open-end credit. It also delves into home equity loans, their uses, and important considerations. Understand the implications of interest rates and debt ratios in managing personal finance.