Credit Card & Lending Terms: Usury Laws, Auto Loans, Repossession, Real Estate, Ratios, Pr, Quizzes of Financial Market

Download Credit Card & Lending Terms: Usury Laws, Auto Loans, Repossession, Real Estate, Ratios, Pr and more Quizzes Financial Market in PDF only on Docsity! TERM 1 Corporate Credit Card Programs DEFINITION 1 Used by employees of the sponsoring company, often charge rather than credit cardsPay monthlyPrimary source of income to the bank is service fees, annual fees, and interchange income TERM 2 Cash Secured Credit Cards DEFINITION 2 Cash collateral required in excess of amount of credit extendedReceivables are self-funding and often younger customers are reached. Target audience has poor credit or short history of creditEstablish or re-establish credit score TERM 3 Private Label (Proprietary) Cards DEFINITION 3 Usable only with specific retailersHigh-risk customer baseContractual agreement between financial institution and a third party large retailerLower credit limits, higher interest rates, limited use TERM 4 Standard Card Programs DEFINITION 4 Traditional form of credit card issuanceConsumers who meet or exceed the institution's minimum credit criteria but may lack sufficient credit history TERM 5 Premium Card Programs DEFINITION 5 Marketed to consumers that have higher income and/or higher credit scores than standard cardholdersGold and PlatinumLower interest rates, waived annual fees, higher limits, and generous reward programs TERM 6 Affinity Card Programs DEFINITION 6 Relationships formed between financial institutions and unaffiliated groups - not-for-profitsAffinity partner endorsing the card receives financial compensation based on the projected level of acceptance and use by its membersCompensation benefits: Sharing of annual fees, interchange income, interest income, and upfront payment TERM 7 Co-branding Programs DEFINITION 7 partnerships formed between financial institutions and unaffiliated orgs, generally for-profit.Airlines, auto manufacturers, retailersCompensation benefits: sharing interchange fees, rebates to customers based on percentage of purchases or transactions TERM 8 Four Party System DEFINITION 8 The four parties include: Consumer Depository institution (Issuer) Retailer Retailer's financial institution (acquirer) Consumer --> Merchant --> Acquirer --> Network --> Issuer --> Consumer's bank account Network is a fifth party which coordinates monetary transfers and the transmission of information between the issuing and acquiring sides of the market TERM 9 Three Party System DEFINITION 9 The three parties include: Consumer Merchant Network The network itself acts as both issuer and acquirer TERM 10 Charges in a Four Party System DEFINITION 10 Interchange fees: paid from the merchant acquirer to the card issuerSwitch/Assessment Fee: paid from acquirer and issuer to networkAcquirer charges the merchant a merchant discount, which includes interchange and assessment fees as well as processing feesInterchange fee is set by the network, not the card issuerRange from 1.5%-2% of the transaction value TERM 21 Phases of Construction Projects DEFINITION 21 Purchase of landLand developmentConstructionVariable interest rates tied to prime or LIBOR ratesProgress payment plan, where holdbacks are kept each time to cover project cost overruns/unpaid bills. Holdbacks are paid in full at the end of the life of the loan, or "final draw" TERM 22 LTV Limits DEFINITION 22 Raw Land - 65%Land Development: 75%Commercial and nonresidential - 80%1-to-4 Family Residential - 85% TERM 23 Commercial Real Estate Lending DEFINITION 23 Focus on the cash flow originating in the underlying real estate collateralUsually balloon structure TERM 24 Debt Service Coverage Analysis DEFINITION 24 Ratio = NOI/Debt Payment (given)NOI = total revenue less real estate expensesDebt payment = Principal + InterestNOI does not include depreciation or income taxes bc it is a reflection of current cash flow TERM 25 Single/Double/Triple Net Lease DEFINITION 25 Single - tenant pays property taxDouble - tenant pays property tax and insuranceTriple - Property tax, insurance, and property maintenance TERM 26 Borrower motivations for prepayment DEFINITION 26 Sale of property Remaining loan could be assumed by the buyer of the property Extend maturity If there is a fear that int rates will be high when loan matures Refinance at a lower int rate TERM 27 Prepayment Restrictions DEFINITION 27 Lockout provision - no prepayment for X amount of yearsDefeasance - legal agreement to change the collateral for the loan from real estate to a portfolio of treasury securities that provide the same cash flows as the loanYield Maintenance Penalty - preserve yield for the lender TERM 28 Calculating Prepayment penalty DEFINITION 28 Using current treasury rate maturing at the same time as the loan... calculate PV of remaining monthly payments until maturity date calculate PV of ballon payment at maturity date Sum the two and subtract from the remaining principal on the loan. This is the prepayment penalty TERM 29 Commercial and Industrial Lending DEFINITION 29 Term loans or lines of creditFixed or variable rates. If variable, 0.25%-0.5% commitment feeCan be secured by collateral - requires perfecting a lien, UCC filing statement TERM 30 Advance Rate DEFINITION 30 Maximum percentage of an asset's book value that is lent to the borrowerInventory is high riskRaw materials are low risk TERM 31 Key Financial Ratios in C&I Lending DEFINITION 31 EBITDA/Int ExpDebt/EquityDebt/EBITDA TERM 32 Asset Based Lending DEFINITION 32 Lenders closely monitor credit availability and collateral. Payments are made directly to a bank and applied to the loan balance TERM 33 Floor Plan Financing DEFINITION 33 Revolving line of credit that allows the borrower to obtain financing for retail goodsLoans made against a specific piece of collateralLoan is repaid when each piece of collateral is sold TERM 34 Curtailment DEFINITION 34 Set forth in the loan agreement and establish the required timing and percentage reduction in principal for each loanPrincipal reduction if inventory is not selling TERM 35 C&I Covenants DEFINITION 35 Affirmative: what must the company do to remain in compliance?Negative: what must the company avoid in order to remain in compliance?Borrower shall/borrower shall not statements