AFIP AFIP Credit and Lending Fundamentals 2

Question 1

What is 'negative equity' in auto lending?

Accepted Answer

When the outstanding loan balance exceeds the vehicle's current market value

Answer

When a borrower has a negative credit score

Answer

When a customer misses a loan payment

Answer

When the loan interest rate exceeds the vehicle's depreciation rate

Question 2

Which of the following is NOT a factor in determining a borrower's FICO credit score?

Accepted Answer

Annual income level

Answer

Payment history

Answer

Credit utilization ratio

Answer

Length of credit history

Question 3

What does 'LTV ratio' stand for in the context of auto lending?

Accepted Answer

Loan-to-Value ratio

Answer

Lender-to-Vehicle ratio

Answer

Liability-to-Value ratio

Answer

Leverage-to-Volume ratio

Question 4

Under the Equal Credit Opportunity Act (ECOA), which of the following is a prohibited basis for denying credit?

Accepted Answer

National origin

Answer

Poor credit history

Answer

Insufficient income

Answer

Excessive existing debt

Question 5

What is the primary purpose of a 'recourse' agreement between a dealer and a finance company?

Accepted Answer

It requires the dealer to buy back a loan if the borrower defaults within a specified period

Answer

It allows the dealer to set the vehicle's residual value

Answer

It gives the dealer the right to renegotiate loan terms after funding

Answer

It establishes the dealer's reserve markup limits

Question 6

What does 'subprime lending' refer to in auto finance?

Accepted Answer

Lending to borrowers with lower credit scores and higher default risk

Answer

Loans offered below the prime interest rate

Answer

Short-term bridge loans for vehicle purchases

Answer

Loans secured by multiple vehicles simultaneously