Chapter 4 Review
When looking for a loan a person will usually go to several different lending institutions. If a person is lucky enough to belong to a credit union that would probably be his or hers number one choice since they typically have the lowest rates. A person that doesn't belong to a credit union and has good credit would next go to a commercial bank where rates are still okay. If you don't want to or can't get a loan from a commercial bank the next best place is usually a S&L. S&Ls offer medium to low range interest rates and can provide many of the services of commercial banks, you might want to go here for an auto or other smaller loan. The next best thing to an S&L is a savings bank, these banks typically serve smaller consumers that are sometimes overlooked by commercial banks. They can make all types of loans and sometimes will have the best interest rates. If all else fails and your credit is very poor you may be forced to consider a consumer finance company. CFCs have incredibly high interest rates, sometimes as much as 36%! They should be avoided if at all possible but if necessary may work for your need.
1. C
2. A
3. D
4. E
5. B

1. When you borrow money you must pay back the interest and the principal.
2. Taking out a loan is similar to using credit because in both cases someone is allowing you to have the money to by something now instead of later.
3. Installment debt is typically used to purchase automobiles, fridges, and washers.
4. People use credit because they feel that they need an item immediately and can't wait until they have enough money to pay for it themselves.
5. The six type of basic lending institutions are commercial banks, savings and loan associations, savings banks, credit unions, finance companies and consumer finance companies.
6. Some of the most common type of credit card used today are Visa and MasterCard.
7. Finance charges are the total cost of using credit expressed in dollars and cents.
8. Four factors a creditor looks at to determine if a person is creditworthy are capacity to pay, character, collateral and past history of credit.
9. The difference between a secured and an unsecured loan is that a secured loan is backed up by collateral while an unsecured loan is not.
10. My responsibilities as a borrower are paying on time and keeping records.
11. The Equal Credit Opportunity Act prohibits denying a person credit based solely on race, religion, national origin, gender, marital status or age. It also makes it illegal to require an applicants spouse to sing a credit form.
12. When states restrict the maximum amount of interest that can be charged it is called a usury law.
13. The three important federal laws regulating consumer credit are the Truth and Lending Act of 1968,the Equal Credit Opportunity Act of 1974 and the Fair Credit Billing Act of 1974.
Evaluating Information- When a person decides to use cash instead of credit for a purchase they must wait until they have saved up enough money to make the purchase. However because they chose to forgo credit they didn't have to pay interest and saved a lot of money. When a person uses credit they must pay interest on the loan. However instead of waiting to save enough money they got their chosen item right away.
Identifying Alternatives- In almost all situations a credit union is the best place to make a loan because they usually have the best interest rates. However for very small loans when you don't want to have to through the loan process you might consider a consumer finance company like Moneytree. If you have bad credit you may also be forced to take a loan out at a consumer finance company, this is the of any past bad decisions. You also might not be a member at a credit union and therefore should take your loan out at a commercial bank.
Making Comparisons- The difference between a secured loan and an unsecured loan is that secured loans are backed up by collateral. This means that if a bank can secure a loan it is much more likely to make the loan even if a person's credit rating is poor.
Demonstrating Reasoned Judgment- When declaring personal bankruptcy a person must consider whether or not it is an ethical decision. This is because if a person declares bankruptcy and doesn't really need to they are cheating all of their creditors. They are disrupting the system and making it so many people will look down on them as a sort of thief.