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 total dollar amount paid to use credit?
Finance charge
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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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!
