Chapter 5



Chapter 6 Questions

1. List two advantages and two disadvantages of using credit (borrowing money).

2. What is the difference between closed-end and open-end (revolving) credit?

3. Give a specific example of an inexpensive loan, a medium-priced loan, and an expensive loan.

4. #6 on page 163

5. Use the ‘debt payments-to-income ratio (p. 165) to determine whether or not the following people can afford their prospective loans (remember the percentage has to be below 20 percent):

|Rick |Darrell |

|-Monthly net income=$1,400 |-Monthly net income=$3,775 |

|-Current monthly debt=$150 |-Current monthly debt=$50 |

|*He wants to buy a car…$300 a month will be his payment |*He wants to buy a home…$700 a month will be his payment |

|Can Rick afford to take on this new loan? (show calculations) |Can Darrell afford to take on this new loan? (show calculations) |

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|Maggie |Carroll |

|-Monthly net income=x |-Monthly net income=x |

|-Current monthly debt=$150 |-Current monthly debt=$600 |

|*She wants to take out a student loan…$200 a month will be her payment |*She wants to buy a home…$1300 a month will be his payment |

|How much does Maggie need to make to afford this debt? (show calculations) |How much does Carroll need to make to afford this debt? (show calculations) |

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6. List the 5 C’s of credit. Of the five…which is/will be your greatest strength? Why? Of the five…which is/will be your greatest weakness? Why? What can you do to improve each of the five (please list one solution next to each of the five C’s)? ANSWER EVERYTHING…THERE’S A LOT GOING ON WITH THIS PARTICULAR QUESTION (

7. List three activities you can do to achieve a high credit rating.

8. Question #1 on page 186.

9. What does it mean for a loan to require a co-signer? List at least one advantage and one disadvantage of a co-signed loan? Is there a situation where you would be willing to be the co-signer on a loan (the person with a good credit rating)? Is there a situation where you would be willing to be the co-signee on a loan (the person with a bad/zero credit rating)? ANSWER EVERYTHING…THERE’S A LOT GOING ON WITH THIS PARTICULAR QUESTION (

10. Question #1 on page 193

11. Question #3 on page 193

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