Chapter 5 Vocab

Question 1

credit

Answer 1

an arrangement to receive cash, goods, or services now and pay for them in the future

Question 2

consumer credit

Answer 2

the use of credit for personal needs (except a home mortgage)

Question 3

consumer loan

Answer 3

one time loans that the borrower repays in a specific period of time with a pre determined payment schedule

Question 4

revolving credit

Answer 4

a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment

Question 5

interest

Answer 5

a periodic charge for the use of credit/ cost of money

Question 6

personal line of credit

Answer 6

a pre arranged loan from a bank for a maximum specified amount - fixed revolving line

Question 7

home equity line of credit

Answer 7

a personal line of credit based on the current market value of your home less the amount still owed on the mortgage
- you can borrow up to 65% of your equity
-

Question 8

two kinds of leases

Answer 8

closed end lease - the leasing company is responsible for the residential value of the vehicle at lease end - you can choose to buy the vehicle for that price and any other charges or fees stipulated in the contract or return it to the leasing company
open end lease - responsible for the residual value of the vehicle and must pay that amount and any other charges or fees stipulated in the lease at the lease end

Question 9

credit bureau

Answer 9

a reporting agency that assembles credit and other information about consumers
- contains employer, former address, current employer, spouse’s name, public records, cheques returned

Question 10

character

Answer 10

the borrower’’s attitude toward credit obligations

Question 11

capacity

Answer 11

the borrower’s financial ability to meet credit obligations

Question 12

capital

Answer 12

the borrower’s assets or net worth

Question 13

collateral

Answer 13

a valuable asset that is pledged to ensure loan payments

Question 14

conditions

Answer 14

the general economic conditions that can affect a borrower’s ability to repay a loan

Question 15

3 ways to finance purchases

Answer 15

take money from savings
use present earnings
borrow against future income - this is a trade off

Question 16

good debt

Answer 16

investment debt that creates value

student loans, mortgages, business loans, investment loans

Question 17

bad debt

Answer 17

for purpose of purchasing dispoable items or deprecitating goods

Question 18

consumer loan

Answer 18

one time loan that the borrower pays back in a specified period of time with a predetermined payment schedule

Question 19

revolving credit

Answer 19

a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment

Question 20

closed end lease

Answer 20

you can buy at lease end or return it to company

Question 21

open end lease

Answer 21

responsible for residual value of vehicle at lease end

Question 22

debts payments to income ratio

Answer 22

monthly payments / net monthly income

• shouldn’t exceed 20%

Question 23

gross debt service ratio (GDSR)

Answer 23

total cost of housing payments (principal, interest, taxes, and heating) divided by the family’s total gross income.
Generally the GDSR - not exceedd 32%

Question 24

Total debt service ratio

Answer 24

% of your gross monthly income that’s used for monthly payments of principal, interest, taxes, heating, and other outstanding loans and debts

• allowed up to 40% max. TDSR
• used to determine if you can afford the loan

Question 25

credit scoring

Answer 25

the higher the score, the more likely borrower’s pay bills on time

Question 26

5c’s for creditors

Answer 26

character: attitude towards credit
capacity: borrower’s financial ability to meet credit obligations
capital: borrower’s assets or net worth
collateral : valuable assets that is pledged to ensure loan payments
conditions: the general economic conditions that can affect borrower’s ability to repay a loan

Question 27

credit score vs. credit rating

Answer 27

rating done on open or closed accounts
score done on individual who pays

scores - range from 300 - 900

rating - R0 –> R9 , R9 - the worst, R0, not mature, R1 - pays when agreed on, R2 within 30 days

Question 28

types of credit checks

Answer 28

hard - inquiries that are recorded on your credit report that count toward your credit score
soft - inquiries that don’t affect your credit score in any way
consumer - inquiries intitiated by you