AFIP AFIP Credit and Lending Products 2 — Questions and Answers
Question 1: What is the purpose of a co-signer on an auto loan?
- To receive a copy of all loan statements
- To share ownership of the vehicle title
- To provide additional creditworthiness when the primary borrower's credit is insufficient (Correct answer)
- To act as the insurance beneficiary on the vehicle
Correct answer: To provide additional creditworthiness when the primary borrower's credit is insufficient
A co-signer strengthens the application by adding their credit and income to the deal, making them equally liable for repayment.
Question 2: Which regulation governs the collection and use of consumer credit information by credit reporting agencies?
- Regulation B
- Fair Credit Reporting Act (FCRA) (Correct answer)
- Truth in Lending Act
- Dodd-Frank Act
Correct answer: Fair Credit Reporting Act (FCRA)
The FCRA regulates how consumer reporting agencies collect, share, and use credit information, and gives consumers the right to dispute errors.
Question 3: A balloon payment loan in the context of auto financing means:
- The interest rate rises at the end of the term
- A large lump-sum payment is due at the end of the loan term (Correct answer)
- The customer receives a refund if the car appreciates
- Monthly payments increase incrementally throughout the term
Correct answer: A large lump-sum payment is due at the end of the loan term
A balloon loan has lower monthly payments with a large final payment due at maturity, after which the borrower may pay off, refinance, or return the vehicle.
Question 4: Under the Equal Credit Opportunity Act (ECOA), a lender CANNOT deny credit based on which of the following?
- Insufficient income
- Poor payment history
- National origin (Correct answer)
- High existing debt load
Correct answer: National origin
ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
Question 5: What does 'front-end profit' refer to in a dealership F&I context?
- Profit earned from F&I product sales like warranties
- Profit earned from the vehicle sale itself (gross on the car) (Correct answer)
- The dealer's factory invoice discount
- The lender's origination fee
Correct answer: Profit earned from the vehicle sale itself (gross on the car)
Front-end profit is the gross profit on the vehicle transaction, while back-end profit comes from F&I products and financing.
Question 6: Which document legally establishes the terms of a consumer auto loan in a dealership sale?
- Retail Installment Sales Contract (RISC) (Correct answer)
- Buyer's Order
- Title Application
- Credit Application
Correct answer: Retail Installment Sales Contract (RISC)
The Retail Installment Sales Contract (RISC) is the binding agreement that sets out the purchase price, down payment, APR, monthly payment, and all loan terms.
AFIP AFIP Credit and Lending Products 2
What is the purpose of a co-signer on an auto loan?