AFIP Credit and Lending Fundamentals Flashcards
6 cards from real AFIP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AFIP Credit and Lending Fundamentals flashcards as text
What is 'negative equity' in auto lending?
Answer: When the outstanding loan balance exceeds the vehicle's current market value
Negative equity (being 'upside down') occurs when a borrower owes more on a vehicle loan than the car is currently worth.
Which of the following is NOT a factor in determining a borrower's FICO credit score?
Answer: Annual income level
FICO scores are calculated using payment history, amounts owed, length of credit history, new credit, and credit mix — income is not a direct factor.
What does 'LTV ratio' stand for in the context of auto lending?
Answer: Loan-to-Value ratio
LTV (Loan-to-Value) ratio compares the loan amount to the appraised value of the vehicle, helping lenders assess collateral coverage.
Under the Equal Credit Opportunity Act (ECOA), which of the following is a prohibited basis for denying credit?
Answer: National origin
ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
What is the primary purpose of a 'recourse' agreement between a dealer and a finance company?
Answer: It requires the dealer to buy back a loan if the borrower defaults within a specified period
A recourse agreement holds the dealer responsible for repurchasing defaulted loans, incentivizing dealers to submit creditworthy applications.
What does 'subprime lending' refer to in auto finance?
Answer: Lending to borrowers with lower credit scores and higher default risk
Subprime lending involves extending credit to borrowers with lower credit scores (typically below 620), who pose a higher risk of default and are charged higher interest rates.