Chapter 7: Personal Lans

Question 1

Personal loan process

Answer 1

application process
negotiating the interest rate
negotiating the loan contract

Question 2

application process

Answer 2

you need to provide information from your personal balance sheet and personal cash flow statement to document you ability to repay the loan. - may also need to provide proof of income with T4 slip

Question 3

Loan contract

Answer 3

which specifies the terms of the loan as agreed to by the borrower and the lender. Specifically, the loan contract identifies the amount of the loan, the interest rate, the repayment schedule, the maturity date, the collateral, and the lender’s rights if payments are late or the loan is not repaid.

Question 4

amortize

Answer 4

To repay the principal of a loan (the original amount borrowed) through a series of equal payments. A loan repaid in this manner is said to be amortized.

Question 5

maturity or term

Answer 5

With respect to a loan, the life or duration of the loan.

Question 6

collateral

Answer 6

Assets of a borrower that back a loan in the event that the borrower defaults. Collateral is a form of security for the lender.

Question 7

secured loan

Answer 7

A loan that is backed or secured by collateral.

Question 8

unsecured loan

Answer 8

A loan that is not backed or secured by collateral.

Question 9

Payday loan

Answer 9

is a short-term loan provided to you if you need funds in advance of receiving your paycheque. To obtain a payday loan, you write a cheque to the lender for the amount of the loan plus interest and fees. You date the cheque for the day when you will receive your paycheque. The payday loan firm will hold the cheque until that time, and will cash it then because your chequing account will have sufficient funds. After you provide this cheque to the payday loan firm, it provides you with a loan in cash or by transmitting funds into your chequing account.

Question 10

home equity loan

Answer 10

A loan in which the equity in a home serves as collateral.

Question 11

equity

Answer 11

The market value of your home less any outstanding mortgage balance and/or debts held by others that are secured against your property.

Question 12

equity of a home

Answer 12

The market value of a home minus the debt owed on the home.

Question 13

second mortgage

Answer 13

A secured mortgage loan that is subordinate (or secondary) to another loan.

Question 14

The Prime Rate

Answer 14

The interest rate a bank charges its best customers.

Question 15

Before making any car-buying decisions , you shuld take into account the following criteria

Answer 15

• personal preference
• price
• condition
• insurance
• resale value
• repair expenses
• financing rate (buying rate)

Question 16

Negoitating the car

Answer 16

• dealerships price car higher than the value to make it seem like you get a good deal
• negotiating by phone or fax
• trade in tactics
• the value of information (know your car)
• purchasing car online

Question 17

Financing decisions

Answer 17

you should estimate the amount of the monthly payments. By evaluating your typical monthly income and expenses, you can determine whether you can afford to make the required payments to finance the car. You should conduct this estimate before shopping for a car so that you know how much you can afford.

Question 18

student loan

Answer 18

A loan provided to finance a portion of a student’s expenses while pursuing post-secondary education.

Question 19

An advantage of leasing

Answer 19

that you do not need a substantial down payment. In addition, you return the car to the dealer at the end of the lease period, so you do not need to worry about finding a buyer for the car. Leasing will also result in lower monthly car payments since you only have to pay for the portion of the car that you use over the term of the lease.

Question 20

Leasing a car also has disadvantages

Answer 20

Since you do not own the car, you have no equity investment in it, even though the car still has value. You are also responsible for maintenance costs while leasing it. Keep in mind that you will be charged for any damage to the car over the lease period. Damage may include customizing the car with aftermarket car accessories. Remember, you have no equity investment in the car, and therefore you do not own it.