Promotional Loan Default Risks Quiz

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Questions and Answers

What is the suggested first step for utilizing extra money according to the text?

Reward yourself with something special

Save for retirement

Invest in a washer and dryer or a freezer (correct)

Save for future planned purchases

What is the recommended financial goal in case of lay-off, illness, or emergencies?

Rewarding oneself with something special

Investing in higher-interest APRs credit cards

Saving six to twelve months of monthly expenses (correct)

Purchasing insurance policies

What is the key advice given regarding budgeting in the text?

Distinguish between 'needs and wants' (correct)

Prioritize 'wants' over 'needs'

Disregard the difference between 'needs and wants'

Focus solely on fulfilling 'wants'

What is the caution given regarding the use of extra funds for rewarding oneself?

Keep it in moderation Signup and view all the answers

What are the potential consequences of not planning and budgeting for necessary monthly expense payments?

Incurring high interest rates and financial penalties Signup and view all the answers

Why do many people end up with very low credit scores according to the text?

Missed payments and compounded higher interest rates Signup and view all the answers

What is the major reason for the high financial consequences of not planning and budgeting for promotional purchases?

Enduring higher interest rates that cost much more Signup and view all the answers

What is recommended for better financial management?

Using an accounting ledger book to track monthly income and expenses Signup and view all the answers

What should be prioritized over wants in budgeting?

Needs such as food, shelter, clothing, utilities, and transportation Signup and view all the answers

What is essential to avoid financial strain when planning for larger ticket purchases?

Planning and budgeting Signup and view all the answers

What should be done with discretionary income after meeting overhead expenses?

Saved for major purchases Signup and view all the answers

How should credit cards be used for major purchases?

To earn reward points, but pay off the balance in full when due Signup and view all the answers

What can be used for planned future expenses such as home repairs and vacations?

A sinking fund Signup and view all the answers

What is crucial to avoid financial strain when budgeting for major purchases?

Budgeting for major purchases like a replacement car or a vacation Signup and view all the answers

What factors should be considered when buying a vehicle?

Intended use, new or pre-owned, purchase or lease, reliability, longevity, and value Signup and view all the answers

What does the text emphasize in making wise financial decisions?

Focusing on needs over wants Signup and view all the answers

What should be done before making unnecessary 'want' purchases like replacing furniture?

Encourages thoughtful consideration Signup and view all the answers

What is a crucial step for making informed decisions about major purchases?

Thorough research and budgeting Signup and view all the answers

What is a potential downside of 0% APR financing for major purchases?

Defaulting incurs high interest Signup and view all the answers

What can happen if one defaults on a deferred interest program for a major purchase?

High interest rates are incurred Signup and view all the answers

What is a risk associated with longer financing terms for major purchases?

Increased risk of defaulting in emergencies Signup and view all the answers

What can happen if one defaults on a 0% APR interest loan for a major purchase?

It can spiral out of control, impacting credit scores Signup and view all the answers

What is a common strategy used by retailers to promote major purchases?

0% APR financing for several months to years Signup and view all the answers

What is the impact of defaulting on promotional programs for major purchases?

Unforeseen costs and regret Signup and view all the answers

What type of lenders often finance enticing promotional offers for major purchases?

Sub-prime lenders Signup and view all the answers

What is a potential advantage of 0% APR interest programs for major purchases?

Advantageous if monthly payments are made as agreed Signup and view all the answers

What is the purpose of thorough research and budgeting for major purchases?

To make informed decisions and get the best value Signup and view all the answers

What is a potential consequence of relying on emotional and impulsive purchases for major items?

Defaulting on promotional programs Signup and view all the answers

What is a potential outcome of financing major purchases with sub-prime lenders?

Charging high interest rates for defaulters Signup and view all the answers

What happens if a $4,000 0% financing loan is defaulted after 12 months of paying on time?

The loan balance becomes $7,137 with a 30% APR interest rate Signup and view all the answers

What are the consequences of defaulting on a Deferred Interest Period Program?

Revocation of program perks and a requirement to pay a 30% APR interest rate from the original date of purchase Signup and view all the answers

How much interest payments can defaulting on a $2,000 Deferred Interest loan after 12 months result in?

$3,057 at a 34.6% APR interest rate Signup and view all the answers

What is the potential impact of making a cash advance to pay off high-interest promotional loans before defaulting?

Lowering the potential interest rate by 20% or more and eliminating a defaulted loan on a credit report Signup and view all the answers

What happens if a 72-month Deferred Interest loan is defaulted?

It can cost over $11,071 in interest, 2.77 times the amount financed, or 277% interest when calculated from the start of the loan Signup and view all the answers

What is the consequence of defaulting in the 12th month of a 24-month promotion period for 0% APR interest?

A 30% APR interest rate is applied to the last twelve months of the unpaid balance Signup and view all the answers

What is the impact of defaulting in the 12th month of a Deferred Interest Promo?

Paying the higher interest rate from the first month until the loan is paid in full, making the cost of the loan much higher Signup and view all the answers

What is the potential benefit of taking a cash advance on unused credit card balances to make payments on high-interest promotional loans?

Avoiding defaulting and keeping payments lower than a 30% APR interest rate Signup and view all the answers

What is the potential impact of defaulting on promotional programs?

Ruining credit ratings and causing financial hardships Signup and view all the answers

Study Notes

The Dangers of Defaulting on Promotional Loan Agreements

Defaulting on a loan agreement with 0% APR financing for furniture can lead to a 30% APR interest rate on the unpaid balance from the date of the missed or late payment, significantly increasing the amount owed.
For a 0% financing loan of $4,000, defaulting after 12 months of paying on time leads to a loan balance of $7,137, and for an $8,000 loan, the balance becomes $14,275, both incurring a 30% APR interest rate.
Deferred Interest Period Programs offer no interest during the first 6-24 months, but if the entire balance is not paid off by the end of the term, interest is charged from the original date of purchase.
Defaulting on payments for Deferred Interest Period Programs results in the revocation of program perks and a requirement to pay a 30% APR interest rate from the original date of purchase.
Taking a cash advance on unused credit card balances to make payments on high-interest promotional loans can help avoid defaulting and keep payments lower than a 30% APR interest rate.
Defaulting on a $2,000 Deferred Interest loan after 12 months can result in over $3,057 in interest payments, and for a $4,000 loan, it can lead to $6,113 in interest payments, both at a 34.6% APR interest rate.
Defaulting on a 72-month Deferred Interest loan can cost over $11,071 in interest, 2.77 times the amount financed, or 277% interest when calculated from the start of the loan.
Defaulting on promotional programs can ruin credit ratings and cause financial hardships.
Defaulting in the 12th month of a 24-month promotion period for 0% APR interest results in a 30% APR interest rate applied to the last twelve months of the unpaid balance.
Defaulting in the 12th month of a Deferred Interest Promo requires paying the higher interest rate from the first month until the loan is paid in full, making the cost of the loan much higher.
Making a cash advance to pay off high-interest promotional loans before defaulting and paying off the balances at a lower interest rate on credit cards can lower the potential interest rate by 20% or more, and eliminate a defaulted loan on a credit report.
Long-term promotional loans, such as 48-72 month terms, increase the risk of defaulting over a longer period of time, making it crucial to plan and budget for these purchases.

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Description

Learn about the risks and consequences of defaulting on promotional loan agreements for furniture and other purchases. Understand how defaulting can lead to high APR interest rates, increased loan balances, and financial hardships. Discover strategies to avoid defaulting and manage promotional loan payments effectively.