5. General factors to consider when shopping for a consumer loan

Factors to Consider before Taking Out a Consumer Loan

Youve made the decision to purchase an item that is affordable only with a loan. When shopping for a loan, there are many aspects of the loans that you should examine. Which of the following questions should be asked and answered about a specific loan proposal before accepting a lenders offer? Check all that apply.

Where is the lending institution located?

Do you need, or only want, the item being purchased?

What is the total cost of transaction (cost of item purchased plus cost of loan)?

What late payment charges, if any, can be accessed, and when?

Does the loans payment date fit my budget?

Youre shopping for a big loan, but you have misgivings about John, the loan officer, at an institution you just visited. What are some reasons that may have you uneasy about accepting a loan there? Check all that apply.

Your parents may be able to help you with the down payment, but John told you to assume they will and to enter a down payment on the application including their contribution.

When you filled out the application, John said if you werent sure about something on it, you could take the application home and complete it when you had the correct answers.

John said that today is the only day you can secure the loan with favorable terms.

When you filled out the loan application, John told you to leave out the smaller amounts you owe to department stores.

John encouraged you to shop around.

John gave you a range of terms and said theyll be worked out at closing.

John said that his loan was most likely the only one youd be able to obtain.

John spent most of the time emphasizing benefits of loans with balloon payments and interest-only payments.

What are characteristics of your reasons for feeling uneasy about John the loan officer? Check all that apply.

The loan officers embellishment of the facts

Feeling under pressure to make a decision

The way the loan officer omitted pertinent information

Your friend suggested you look into a variable-rate loan. What questions should you ask? Check all that apply.

What is the interest rate tied to?

Can I afford the maximum possible monthly payment?

How often is the rate subject to change?

What changes after a rate adjustmentthe monthly payment amount or the number of monthly payments left on the loan?

Given the long list of relevant loan-related considerations described above, the paradox of choice often arises when attempting to make borrowing decisions. Which of the following phrases addresses the characteristics and recommended solutions for this phenomenon? Check all that apply.

Keep it simple and select the easiest or least expensive alternative

Prepare a list of possible alternatives and make a random selection

Be prepared to ask for assistance

Identify your goals and a framework for evaluating any trade-offs that must be made when making your decision