PFM - Chapter 4, Lesson 2

Question 1

What percentage of Americans have a credit card?

Answer 1

80%

Question 2

Revolving Credit

Answer 2

Credit that automatically renews whenever a payment is made to reduce the debt.
- You are given a credit limit
- Every time you spend, you add more debt

Question 3

Collateral

Answer 3

Something owned (that has value) offered as security on a debt; if the debt is not repaid as agreed, the item is forfeited to the lender.
- The lender can resell the item to recoup the cost.

Question 4

Secured loan

Answer 4

When you put down a security deposit or use something as collateral

Question 5

Unsecured loan

Answer 5

When the lender does not require you to make a security deposit or put up collateral.

Question 6

Debt Consolidation

Answer 6

A loan used to move several debts into one payment.

Question 7

Interest

Answer 7

The additional cost a lender charges for borrowing their money.

Question 8

Personal loans usually have higher ___________________.

Answer 8

Interest rates.

Question 9

Do you usually have to put up collateral to get a personal loan?

Answer 9

NO!

Question 10

Home Mortgage

Answer 10

A loan that typically lasts for 15-30 years and is used to buy a house.

Question 11

A mortgage is a financial _____________ on a property.

Answer 11

Lien

Question 12

Lien

Answer 12

A legal claim (or right to own) against an asset until the debt or loan is repaid.

Question 13

What is the collateral in a mortgage loan?

Answer 13

The HOUSE!

Question 14

A home is an ___________________ asset.

Answer 14

Appreicating

Question 15

Appreciating Asset

Answer 15

An asset that increases in value over a period of time

Question 16

Equity

Answer 16

The increase in value of a home over time; the difference between the amount owed and the amount the home could be sold for.

Question 17

Home Equity Line of Credit (HELOC)

Answer 17

Owners borrow money against their home equity.

Question 18

How do homeowners get their money with HELOC’s?

Answer 18

By cashing out a portion of their money in lump sum.

Question 19

You can spend you equity whenever you want, as long as _________________.

Answer 19

You don’t exceed your line of credit.

Question 20

Default

Answer 20

Failure to repay a loan on time

Question 21

Why is using a HELOC a bad idea?

Answer 21

If you default, the bank could take your home.

Question 22

Student loan

Answer 22

Money borrowed from the federal government or private lenders to pay the cost of going to college.

Question 23

About how long does it take to pay back student loans?

Answer 23

Around 10-20 years or more.

Question 24

Installment credit

Answer 24

A loan for a fixed amount of money that’s paid back in monthly installments.

Question 25

A car is a ______________ asset.

Answer 25

Depreciating

Question 26

Depreciating asset

Answer 26

An asset that loses value over time, such as a car that’s worth less every year.

Question 27

Predatory lenders

Answer 27

A lender who uses deceptive, unfair, or fraudulent practices on borrowed who are desperate for cash.

Question 28

Why are they called “predatory” lenders?

Answer 28

Because they charge very high interest rates and fees for loans.

Question 29

Who usually depends on predatory lenders?

Answer 29

“Unbanked” Americans; those who do not or cannot have a bank account.