Debt

Question 1

Annual percentage rate (APR)

Answer 1

Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan

Question 2

Credit card

Answer 2

Type of card issued by a bank that allows users to finance a purchase

Question 3

Credit report

Answer 3

A detailed report of an individual’s credit history

Question 4

Credit score

Answer 4

A measure of an individual’s credit risk; calculated from a credit report using a standardized formula

Question 5

Debt snowball

Answer 5

Dave Ramsey’s preferred method of debt repayment; debts paid off from smallest to largest balance.

Question 6

Depreciation

Answer 6

A decrease or loss in value

Question 7

Introductory rate

Answer 7

An interest rate charged to a customer during the early stages of a loan; the rate often goes up after a specified period of time

Question 8

Loan term

Answer 8

Time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term

Question 9

Tax deduction

Answer 9

An expense, such as a charitable contribution, that can be deducted from one’s taxable income

Question 10

Unsecured loan

Answer 10

An unsecured loan is given to borrowers based on their financial resources or ability to repay the loan. Nothing “secures” the loan. In other words, the lender does not have rights to a specific asset if the loan is not repaid. Personal loans, student loans, and personal lines of credit are examples of unsecured loans.

Question 11

Secured loan

Answer 11

A secured loan is usually needed when borrowing large amounts of money. The loan is “secured” with collateral. In other words, if you default on the loan and your house was used as collateral, the lender would take the house. Secured loans usually have lower interest rates and longer repayment terms. Automobile loans, mortgages and home equity loans are examples of secured loans.

Question 12

Fixed rate mortgage

Answer 12

With a fixed rate mortgage, the interest rate is set when you take out the loan, and it will not change. Therefore, your monthly payments will never change.

Question 13

Adjustable rate mortgage

Answer 13

Variable rate mortgages (or adjustable rate mortgages—ARM) will start with a lower rate. This initial rate may stay the same for months or years. But when this “introductory period” is over, your interest rate will change and the amount of your monthly payment will likely go up.

Question 14

Home Equity Loans

Answer 14

A home equity loan means borrowing money against your house. Like any other debt, home equity loans are a bad idea. If you can’t make the payments, you risk losing your home!

Question 15

Car lease

Answer 15

a long-term rental agreement; a form of secured long-term debt

Question 16

Credit Counseling

Answer 16

Companies that offer consumer credit counseling service can help you get better interest rates and lower payments, but at a price. When you use one of these companies and then try to get a home mortgage loan, you will be treated the same as if you had filed Chapter 13 bankruptcy.

Question 17

Credit bureau

Answer 17

an agency that researches and collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. Typical clients include banks, mortgage lenders, credit card companies, and other financing companies.