AFIP AFIP Credit and Lending Fundamentals

Question 1

What does the term 'credit score' primarily measure in the context of consumer lending?

Accepted Answer

A borrower's likelihood of repaying debt on time

Answer

The total amount of debt a consumer holds

Answer

A consumer's annual income level

Answer

The number of credit accounts a consumer has opened

Question 2

Which federal law requires lenders to disclose the Annual Percentage Rate (APR) to borrowers before finalizing a loan?

Accepted Answer

Truth in Lending Act (TILA)

Answer

Fair Credit Reporting Act (FCRA)

Answer

Equal Credit Opportunity Act (ECOA)

Answer

Fair Debt Collection Practices Act (FDCPA)

Question 3

In auto financing, what is the primary difference between a secured loan and an unsecured loan?

Accepted Answer

Secured loans have lower interest rates because collateral backs the debt

Answer

Unsecured loans require a co-signer while secured loans do not

Answer

Secured loans are only available to prime borrowers

Answer

Unsecured loans always have shorter repayment terms

Question 4

What does 'debt-to-income ratio' (DTI) represent in the lending qualification process?

Accepted Answer

Monthly debt payments divided by gross monthly income

Answer

The ratio of total assets to total liabilities

Answer

Total credit card balances divided by credit limits

Answer

The percentage of income saved each month

Question 5

Which credit bureau scoring model is most commonly used by auto lenders and finance companies in the United States?

Accepted Answer

FICO Score

Answer

VantageScore 3.0

Answer

TransUnion CreditVision

Answer

Equifax Risk Score

Question 6

In dealership finance, what is a 'reserve' in the context of F&I (Finance and Insurance)?

Accepted Answer

The difference between the buy rate and the sell rate on a loan

Answer

Money set aside by the dealer for future expenses

Answer

A portion of insurance premiums held in escrow

Answer

A required down payment held by the lender