Study & Review Guide – Exam 2 – Personal Finance

Chapters 5, 6, and auto and student loan section of 7

Chapter 5:

1. What is depreciation of a car?
2. What are the steps in the auto-buying process?
3. What are the advantages of buying a used car rather than a new car?
4. Which is the cheapest source of a used car (where or from whom should you buy it)?
5. What are the different sources of an auto loan?
6. What is a closed-end lease?
7. What does “capitalized cost” mean in an auto lease?
8. You have an open-end lease. What would cause you to have to pay additional money at the end of the lease when you turn your car back in?
9. How much do cars depreciate during the first 12-18 months of their lives, normally?
10. What are the reasons for owning a home?
11. What is the most important financial reason for owning a home, for most homeowners?
12. What are the two up-front, one-time costs of buying a home?
13. If a newlywed couple is only going to live someplace a short while, what advice should they follow regarding housing?
14. A couple makes a 10% down payment on a house. What will the lender require them to have?
15. You recently got a home mortgage. During the early years of the mortgage, toward what will most of your house payment go?
16. What is the max percent of gross income for your mortgage payments (from perspective of most lenders)?
17. Mortgage payments plus other debt payments should not exceed what percent of your gross monthly income (from perspective of most lenders)?
18. What is an escrow account used for?
19. When would renting be preferred to buying (for housing)?
20. What is a fixed rate mortgage, and how does it differ from a variable (or adjustable) rate mortgage?
21. What items should one consider when evaluating refinancing a mortgage

Chapter 6

22. What are some appropriate reasons to use credit?
23. What are some inappropriate reasons to use credit?
24. What should one do first to establish creditworthiness?
25. What are some indications of overspending?
26. What should a woman do to establish her own credit history?
27. Monthly nonmortgage consumer credit payments should not exceed what percent of take-home pay?
28. Given a certain amount of gross income and the percent of that gross income that normally go for taxes and other deductions, use the max percent from #27 to calculate the maximum monthly consumer credit payments.
29. How can avoid interest charges if using open account credit?
30. Will a bank start calculating and charging interest if you take a cash advance on your credit card?
31. What is a prestige credit card?
32. Who benefits most from a rebate credit card?
33. Who might have a secured credit card?
34. What protection from federal law does a debt card holder have when his or her card is lost or stolen?
35. What type of consumer benefits most from debit cards (as opposed to credit cards)?
36. What are prepaid cards, and how do they work?
37. What are the key items lenders look at in granting credit?
38. What is the most common method of calculating finance charges on bank credit cards?
39. What is the max loss you could be required to pay if your credit card is lost or stolen?
    Chapter 7:
40. What must you do to qualify for a Perkins loan?
41. For whom are student loans available, what limits are there on student loans, and what is true of the interest on student loans?
42. What loans could one get that would not have to be repaid until after you graduate from college?
43. What are 529 college savings plans, and how are there earnings treated with respect to taxes?