PFM - Chapter 4, Lesson 2 Flashcards
What percentage of Americans have a credit card?
80%
Revolving Credit
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
Collateral
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.
Secured loan
When you put down a security deposit or use something as collateral
Unsecured loan
When the lender does not require you to make a security deposit or put up collateral.
Debt Consolidation
A loan used to move several debts into one payment.
Interest
The additional cost a lender charges for borrowing their money.
Personal loans usually have higher ___________________.
Interest rates.
Do you usually have to put up collateral to get a personal loan?
NO!
Home Mortgage
A loan that typically lasts for 15-30 years and is used to buy a house.
A mortgage is a financial _____________ on a property.
Lien
Lien
A legal claim (or right to own) against an asset until the debt or loan is repaid.
What is the collateral in a mortgage loan?
The HOUSE!
A home is an ___________________ asset.
Appreicating
Appreciating Asset
An asset that increases in value over a period of time
Equity
The increase in value of a home over time; the difference between the amount owed and the amount the home could be sold for.
Home Equity Line of Credit (HELOC)
Owners borrow money against their home equity.
How do homeowners get their money with HELOC’s?
By cashing out a portion of their money in lump sum.
You can spend you equity whenever you want, as long as _________________.
You don’t exceed your line of credit.
Default
Failure to repay a loan on time
Why is using a HELOC a bad idea?
If you default, the bank could take your home.
Student loan
Money borrowed from the federal government or private lenders to pay the cost of going to college.
About how long does it take to pay back student loans?
Around 10-20 years or more.
Installment credit
A loan for a fixed amount of money that’s paid back in monthly installments.
A car is a ______________ asset.
Depreciating
Depreciating asset
An asset that loses value over time, such as a car that’s worth less every year.
Predatory lenders
A lender who uses deceptive, unfair, or fraudulent practices on borrowed who are desperate for cash.
Why are they called “predatory” lenders?
Because they charge very high interest rates and fees for loans.
Who usually depends on predatory lenders?
“Unbanked” Americans; those who do not or cannot have a bank account.
