Lending & Credit Products Flashcards

What is the primary purpose of a Home Equity Line of Credit (HELOC)?

Answer: To offer a revolving credit line secured by the borrower's home equity

A HELOC is a revolving credit line that allows homeowners to borrow against their home equity up to a set limit, draw funds as needed, and repay repeatedly during the draw period.

Which loan type features fixed monthly payments of equal amounts that fully repay principal and interest by the end of the term?

Answer: Fully amortizing loan

A fully amortizing loan has scheduled payments that cover both interest and principal so that the loan balance reaches zero at the end of the term.

What does the Loan-to-Value (LTV) ratio measure in mortgage lending?

Answer: The ratio of the loan amount to the appraised value of the collateral

LTV compares the mortgage loan amount to the appraised value of the property, helping lenders assess collateral risk — a higher LTV signals more lender risk.

A retail banker is explaining auto loans to a customer. Which statement about auto loans is MOST accurate?

Answer: Auto loans are secured by the vehicle, which serves as collateral

Auto loans are secured loans in which the vehicle itself serves as collateral, allowing the lender to repossess the car if the borrower defaults.

Which federal law requires lenders to disclose the Annual Percentage Rate (APR) and total finance charges to borrowers?

Answer: Truth in Lending Act (TILA)

TILA mandates that lenders disclose the APR, finance charges, and other loan terms so consumers can compare credit offers on an equal basis.

A customer applies for a personal loan with no collateral requirement. What type of loan is this?

Answer: Unsecured loan

An unsecured loan is not backed by collateral; approval is based on creditworthiness alone, typically resulting in higher interest rates than secured loans.

What distinguishes a subsidized federal student loan from an unsubsidized federal student loan?

Answer: The federal government pays interest on subsidized loans while the student is enrolled at least half-time

For subsidized federal student loans, the U.S. Department of Education pays the accruing interest while the borrower is in school at least half-time, during the grace period, and during deferment.