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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.

What is the reason for loan?

Where is the lending institution located?

Do the loans monthly payments fit in my budget?

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?

Youre shopping for a big loan, but you have misgivings about Dmitri, 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.

Dmitri encouraged you to shop around.

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

Dmitri discussed options for taking out a smaller loan, such as selling current assets to raise a bigger down payment.

Dmitri told you that the interest rate is the only important fee to worry about and that discussing the APR is an unnecessary complication.

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

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

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

Dmitri went over the fine print, such as late payment charges and prepayment provisions.

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

The loan officers embellishment of the facts

The way the loan officer omitted pertinent information

Feeling under pressure to make a decision

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

Can I afford the maximum possible monthly payment?

How many points are added to the base rate?

Is there a maximum rate?

How often is the rate subject to change?

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.

Prepare a list of possible alternatives and make a random selection

Be prepared to ask for assistance

Arises when there are too few alternatives and you wish you had more features or options to select from

Arises when there are too many complicated choices, such you can become overwhelmed and make poor decisions