TYPES OF BORROWING, PART II 5.1 Students can identify different types of borrowing and explain the process of paying back borrowed money.

Types of Borrowing: Student Loans Borrowing money to pay for college Federal government loans are usually better than commercial lenders Low, fixed interest rates (3.86%)

Types of Borrowing: Student Loans Sometimes limits on how much you can borrow per year Based on need, so feds may deny application if your income is too high As cost of tuition goes up, loans can become burden

Student Loan: Risk and Return Can be a good investment if it will lead to a better job and career Can be a problem if you borrow too much. It means you start your career in debt.

Types of Borrowing: Car Loan Paying for new (or used) car month loan = 6.19% % The rate you get is based on your credit history – better credit means lower interest rate Loan from a bank usually better than the dealership (but not always)

Car Loan: Risk and Return Car is usually a necessity in American economy Good investment because a car can be resold Some cars retain their value; all cars depreciate over time

Types of Borrowing: Collateral loan You agree to use one of your assets as a guarantee that you will pay back the loan. If you default, the lender can take your asset to pay your debt What’s the root?

Types of Borrowing: Payday Loan Cash advance for a paycheck (check cashing loans) Amounts range from $100 - $1,000

Types of Borrowing: Payday Loan Must be 18 years of age; proof of income of at least $1,000 for three months Small, short-term loan usually available to people who have bad credit and can’t get a traditional loan Extremely high interest rates (400%!)

Montel Williams and Money Mutual 1,300%!

Payday: Risk and Return Horrible return Should never be used except in dire emergency

TYPES OF BORROWING 5.1 Students can identify different types of borrowing and explain the process of paying back borrowed money.