The Penultimate Loan Quiz

1. What is the difference between a home loan and general loan?

There are no differences

ADP does not allow loans on homes

Home loans can be for up to 15 years while general loans are only up to 5

Home loans can be for up to 30 years while general loans are only up to 5

Home loans and general loans differ in terms of the maximum duration for which they can be taken. Home loans can be obtained for a longer period of up to 30 years, whereas general loans have a maximum duration of only up to 5 years. This means that individuals who require financing specifically for purchasing or building a home have the option to repay the loan over a longer period, while general loans are typically meant for shorter-term financing needs.

Explanation

Home loans and general loans differ in terms of the maximum duration for which they can be taken. Home loans can be obtained for a longer period of up to 30 years, whereas general loans have a maximum duration of only up to 5 years. This means that individuals who require financing specifically for purchasing or building a home have the option to repay the loan over a longer period, while general loans are typically meant for shorter-term financing needs.

2. What are the max number of loans can a participant have outstanding at a time?

One for Small Market, One for Mid and Large Market

Two for all Markets

Three for Small Market, Five for Mid and Large

Unlimited for all Markets

Participants can have a maximum of three outstanding loans at a time in the Small Market, and a maximum of five outstanding loans at a time in the Mid and Large Markets. There is no limit to the number of loans a participant can have in all Markets.

Explanation

Participants can have a maximum of three outstanding loans at a time in the Small Market, and a maximum of five outstanding loans at a time in the Mid and Large Markets. There is no limit to the number of loans a participant can have in all Markets.

3. What is the maximum a participant can borrow

100% of their total balance minus earnings but no more than 50K in a rolling 12 month period

50% of their vested balance but no more than 50K in a rolling 12 month period

25% of their vested balance

50% of their vested balance but no more than 25K in a rolling 12 month period

Participants can borrow a maximum of 50% of their vested balance, but the amount borrowed cannot exceed 50K in a rolling 12 month period. This means that participants can borrow up to half of their vested balance, but the maximum limit for borrowing is 50K.

Explanation

Participants can borrow a maximum of 50% of their vested balance, but the amount borrowed cannot exceed 50K in a rolling 12 month period. This means that participants can borrow up to half of their vested balance, but the maximum limit for borrowing is 50K.

4. How much is the loan fee?

50.00

125.00 for Small Market and Varied for Mid and Large

175.00 for Small Market and 100.00 for Mid and Large

There is not a fee to take a loan

The loan fee is 125.00 for Small Market and Varied for Mid and Large.

Explanation

The loan fee is 125.00 for Small Market and Varied for Mid and Large.

5. Is there a 10% penalty if a loan is taken?

Yes, there is upon taking the loan

No, as long as they pay it back there is not

It would only incur a penalty if they did not pay it back

Explanation

It would only incur a penalty if they did not pay it back

6. A plan should not request a refinance on an employees loan if they have an additional loan available

True

False

If an employee has an additional loan available, it means they already have access to funds that can be used to repay their existing loan. In this case, requesting a refinance would be unnecessary and potentially burdensome for the employee. Therefore, it is true that a plan should not request a refinance on an employee's loan if they have an additional loan available.

Explanation

If an employee has an additional loan available, it means they already have access to funds that can be used to repay their existing loan. In this case, requesting a refinance would be unnecessary and potentially burdensome for the employee. Therefore, it is true that a plan should not request a refinance on an employee's loan if they have an additional loan available.

7. When a Loan is Re-Amortized, the current interest rate will be used, not the employee's original interest rate

True

False

When a loan is re-amortized, the current interest rate is used instead of the employee's original interest rate. Re-amortization refers to the process of adjusting the loan repayment schedule, typically by extending the loan term or changing the monthly payment amount. By using the current interest rate, the lender ensures that the loan is recalculated based on the most up-to-date financial conditions. This allows for a more accurate calculation of the loan balance and repayment schedule, taking into account any changes in interest rates that may have occurred since the loan was initially granted.

Explanation

When a loan is re-amortized, the current interest rate is used instead of the employee's original interest rate. Re-amortization refers to the process of adjusting the loan repayment schedule, typically by extending the loan term or changing the monthly payment amount. By using the current interest rate, the lender ensures that the loan is recalculated based on the most up-to-date financial conditions. This allows for a more accurate calculation of the loan balance and repayment schedule, taking into account any changes in interest rates that may have occurred since the loan was initially granted.

8. Aside from the active duty military exception, when Re-amortizing or refinancing a loan, the loan must be paid off by the end date of the original loan request. A loan CANNOT be re-amortized for a longer period

True

False

When re-amortizing or refinancing a loan, the loan must be paid off by the end date of the original loan request, except for the active duty military exception. This means that the loan cannot be extended or re-amortized for a longer period. In other words, the borrower cannot extend the repayment term when re-amortizing or refinancing the loan. Therefore, the statement is true.

Explanation

When re-amortizing or refinancing a loan, the loan must be paid off by the end date of the original loan request, except for the active duty military exception. This means that the loan cannot be extended or re-amortized for a longer period. In other words, the borrower cannot extend the repayment term when re-amortizing or refinancing the loan. Therefore, the statement is true.

9. As per the IRS regulations, deemed distributed loan is considered as an active loan on our recordkeeping system. If the plan only allows a participant to have one outstanding loan at a time and they have a deemed loan, we will still allow the participant to take another loan, we will just subtract the deemed loan from the amount available

True

False

If the plan only allows a participant to have one outstanding loan at a time, the participant must repay the deemed loan, before they are allowed to take another loan.

Explanation

If the plan only allows a participant to have one outstanding loan at a time, the participant must repay the deemed loan, before they are allowed to take another loan.

10. What is a loan reamortization?

Lowering your payments

Extending the term of the loan

Shortening the number of payments

None of the above

Loan reamortization refers to the process of shortening the number of payments required to repay a loan. This can be achieved by adjusting the terms of the loan, such as reducing the interest rate or increasing the monthly payment amount. By shortening the number of payments, borrowers can save on interest costs and pay off their loan sooner. This option is beneficial for individuals who want to pay off their debt faster or have a change in their financial situation that allows them to make larger payments.

Explanation

Loan reamortization refers to the process of shortening the number of payments required to repay a loan. This can be achieved by adjusting the terms of the loan, such as reducing the interest rate or increasing the monthly payment amount. By shortening the number of payments, borrowers can save on interest costs and pay off their loan sooner. This option is beneficial for individuals who want to pay off their debt faster or have a change in their financial situation that allows them to make larger payments.