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Questions and Answers
What is the federal law that requires creditors to disclose the annual percentage rate and the finance charge as a dollar amount?
What is the federal law that requires creditors to disclose the annual percentage rate and the finance charge as a dollar amount?
What is the total dollar amount paid to use credit?
What is the total dollar amount paid to use credit?
Finance charge
What is the percentage cost of credit on a yearly basis called?
What is the percentage cost of credit on a yearly basis called?
Annual percentage rate
What is the term for interest computed on principal only and without compounding?
What is the term for interest computed on principal only and without compounding?
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What is the method of computing interest when more than one payment is made on a simple interest loan?
What is the method of computing interest when more than one payment is made on a simple interest loan?
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What is the method of computing interest in which interest is calculated on the full amount of the original principal?
What is the method of computing interest in which interest is calculated on the full amount of the original principal?
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What is the assessment of finance charges after payments made during the billing period have been subtracted called?
What is the assessment of finance charges after payments made during the billing period have been subtracted called?
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What is the name of the method that gives no credit for payments made during the billing period?
What is the name of the method that gives no credit for payments made during the billing period?
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What is the method of computing finance charges that uses a weighted average of the account balance throughout the current billing period?
What is the method of computing finance charges that uses a weighted average of the account balance throughout the current billing period?
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What is the mathematical formula to determine how much interest has been paid at any point in a loan term called?
What is the mathematical formula to determine how much interest has been paid at any point in a loan term called?
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What type of insurance ensures repayment of a loan in the event the borrower is unable to repay it?
What type of insurance ensures repayment of a loan in the event the borrower is unable to repay it?
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What federal law, enacted in 1978, regulates debt collection activities?
What federal law, enacted in 1978, regulates debt collection activities?
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What type of personal bankruptcy involves many debts being forgiven?
What type of personal bankruptcy involves many debts being forgiven?
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What is the voluntary plan that a debtor with regular income develops to propose to a bankruptcy court?
What is the voluntary plan that a debtor with regular income develops to propose to a bankruptcy court?
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In which period did the use of installment credit explode on the American scene?
In which period did the use of installment credit explode on the American scene?
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What is perhaps the greatest disadvantage of using credit?
What is perhaps the greatest disadvantage of using credit?
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Which is a good example of open-end credit?
Which is a good example of open-end credit?
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What is a credit arrangement in which loans are made on a continuous basis and you are billed periodically called?
What is a credit arrangement in which loans are made on a continuous basis and you are billed periodically called?
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What term describes the borrower's attitude toward his or her credit obligation?
What term describes the borrower's attitude toward his or her credit obligation?
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Spend no more than what percentage of your net income on credit payments?
Spend no more than what percentage of your net income on credit payments?
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Which law regulates the use of credit reports and gives you access to your credit file?
Which law regulates the use of credit reports and gives you access to your credit file?
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Which law sets the procedures for promptly correcting billing mistakes and crediting your payments?
Which law sets the procedures for promptly correcting billing mistakes and crediting your payments?
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If you have a complaint against a bank regarding violation of federal credit laws, where is the best place to complain?
If you have a complaint against a bank regarding violation of federal credit laws, where is the best place to complain?
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Study Notes
Personal Finance Key Concepts
- Truth in Lending Law: Federal law mandating creditors to provide the annual percentage rate (APR) and finance charges in dollar amounts.
- Finance Charge: Total monetary cost incurred to utilize credit.
- Annual Percentage Rate (APR): Yearly percentage cost of credit; essential for comparing different credit sources.
Interest Calculation Methods
- Simple Interest: Interest calculated solely on the principal amount without compounding.
- Declining Balance Method: Interest calculation method applied when multiple payments are made on a simple interest loan, reducing the remaining balance over time.
- Add-On Interest Method: Interest determined based on the original principal, adding specified interest upfront.
- Adjusted Balance Method: Finance charges assessed after deducting payments made during the billing cycle.
- Previous Balance Method: Charges calculated without considering payments made within the billing period.
- Average Daily Balance Method: Uses a weighted average of account balances throughout the billing cycle for finance charge assessment.
- Rules of 78s: Formula used to calculate interest already paid at any time during the loan period.
Bankruptcy and Credit Regulations
- Credit Insurance: Insurance type that guarantees loan repayment if the borrower cannot fulfill obligations.
- Fair Debt Collection Practices Act: Federal law regulating the practices of debt collection enacted in 1978.
- Chapter 7 Bankruptcy: A form of personal bankruptcy that permits the forgiveness of various debts.
- Chapter 13 Bankruptcy: A repayment plan proposed by a debtor with a steady income to the bankruptcy court.
Credit Management and Usage
- Rise of Installment Credit: The use of installment credit surged in the early 1900s across the U.S.
- Temptation to Overspend: A significant drawback associated with credit reliance, leading to potential financial distress.
- Open-End Credit Examples: Credit arrangements like Visa and MasterCard are considered open-end credit due to their continuous loan availability.
- Open-End Credit Definition: A credit system where loans are available on a continuous basis, with periodic billing.
Credit Responsibility
- Character in Credit: Refers to the borrower's approach and responsibility towards their credit obligations.
- Credit Spending Guideline: It is advisable to spend no more than 20% of net income on credit payments to avoid excessive debt.
- Fair Credit Reporting Act: Regulates credit report usage, mandates deletions of outdated information, and grants access to personal credit files.
- Fair Credit Billing Act: Establishes procedures for quickly resolving billing errors and properly crediting payments.
- Complaint Process for Banking Issues: For grievances against banks concerning federal credit law violations, the Federal Reserve System is the recommended authority for complaints.
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Description
Test your knowledge of key terms and concepts from Chapter 7 of Personal Finance. This quiz focuses on important definitions like the Truth in Lending Law, finance charges, and annual percentage rates. Perfect for review and reinforcement of financial literacy!
