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Vehicle Financing and Credit Practices Flashcards

7 cards from real DMV practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Vehicle Financing and Credit Practices flashcards as text

  1. What federal law requires auto dealers to disclose the Annual Percentage Rate (APR) and total finance charge on a retail installment sale contract?

    Answer: The Truth in Lending Act (TILA / Regulation Z)

    The Truth in Lending Act (TILA), implemented through Regulation Z, requires creditors and dealers to clearly disclose the APR, total finance charge, and other credit terms to consumers.

  2. Under the Truth in Lending Act, the Annual Percentage Rate (APR) must be disclosed to a buyer before they:

    Answer: Become legally obligated on the credit transaction

    TILA requires that all required credit disclosures, including the APR, be provided to the consumer before they become legally obligated on the transaction.

  3. A 'spot delivery' or 'conditional delivery' occurs when a dealer delivers a vehicle to a buyer before:

    Answer: Final financing approval has been obtained from a lender

    A spot delivery means the dealer allows the customer to take possession of the vehicle before the lender has formally approved and funded the financing.

  4. When a dealer assigns a retail installment sale contract to a third-party lender and the lender rejects it, who typically bears financial responsibility under a 'with recourse' agreement?

    Answer: The dealer

    Under a 'with recourse' agreement, if the lender rejects or charges back the contract, the dealer is financially responsible and must repurchase the contract.

  5. What is 'dealer reserve' (also called dealer markup or participation) in auto financing?

    Answer: The difference between the buy rate offered by the lender and the higher rate charged to the customer

    Dealer reserve is the additional profit a dealer earns by marking up the interest rate above the lender's buy rate; the difference is shared between the lender and the dealer.

  6. Under federal law, how long is a dealer generally required to retain credit application records and retail installment contracts?

    Answer: 2 years

    Under the Equal Credit Opportunity Act (ECOA) and Regulation B, creditors must retain records of credit applications and actions taken for a minimum of 25 months for individual applicants (effectively 2 years in most dealer contexts).

  7. A retail installment sale contract (RISC) differs from a simple purchase agreement primarily because a RISC:

    Answer: Includes financing terms such as APR, number of payments, and total amount financed

    A retail installment sale contract governs the credit portion of the transaction and must include all required TILA disclosures such as the APR, finance charge, payment schedule, and total of payments.