AFIP AFIP Credit and Lending Fundamentals 2

Question 1

What is 'negative equity' in auto lending?

Accepted Answer

When the outstanding loan balance exceeds the vehicle's current market value

Answer

Negative equity (being 'upside down') occurs when a borrower owes more on a vehicle loan than the car is currently worth.

Question 2

Which of the following is NOT a factor in determining a borrower's FICO credit score?

Accepted Answer

Annual income level

Answer

FICO scores are calculated using payment history, amounts owed, length of credit history, new credit, and credit mix — income is not a direct factor.

Question 3

What does 'LTV ratio' stand for in the context of auto lending?

Accepted Answer

Loan-to-Value ratio

Answer

LTV (Loan-to-Value) ratio compares the loan amount to the appraised value of the vehicle, helping lenders assess collateral coverage.

Question 4

Under the Equal Credit Opportunity Act (ECOA), which of the following is a prohibited basis for denying credit?

Accepted Answer

National origin

Answer

ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.

Question 5

What is the primary purpose of a 'recourse' agreement between a dealer and a finance company?

Accepted Answer

It requires the dealer to buy back a loan if the borrower defaults within a specified period

Answer

A recourse agreement holds the dealer responsible for repurchasing defaulted loans, incentivizing dealers to submit creditworthy applications.

(AFIP) Certified Association of Finance & Insurance Professionals Practice Test