Risk Analysis Flashcards
7 cards from real CAC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Analysis flashcards as text
In auto finance, what does the recovery rate on a repossessed vehicle represent?
Answer: The share of the defaulted balance recovered from sale proceeds net of costs
Recovery rate measures how much of the outstanding balance is recouped after liquidating collateral and paying expenses.
Which items are typically included in a debt-to-income (DTI) calculation?
Answer: All recurring monthly debt obligations divided by gross monthly income
DTI captures the borrower's total recurring debt burden relative to gross income.
Why do underwriters require stipulations such as proof of income or residence before funding?
Answer: To verify application information and reduce misrepresentation risk
Stipulations confirm key facts so the credit decision rests on accurate data.
What is a key risk of extending an auto loan term to 84 months?
Answer: The borrower stays in negative equity longer as the vehicle depreciates
Long terms slow principal paydown, so balances can exceed vehicle value for much of the loan.
What does a roll rate measure in delinquency analysis?
Answer: The percentage of accounts moving from one delinquency bucket to the next
Roll rates show how many accounts worsen, e.g. from 30 to 60 days past due, helping forecast losses.
An account that defaults within its first few scheduled payments is often a red flag for what?
Answer: Possible fraud or application misrepresentation
Early payment defaults frequently indicate the borrower never intended or was never able to pay as represented.
Why might a lender reduce the upfront advance paid to a dealer on a higher-risk contract?
Answer: To keep the advance below expected collections and protect against losses
A lower advance relative to forecast collections leaves a cushion if the contract underperforms.