DO NOW 12/5/16 Use Google to define these terms IN YOUR NOTES Credit

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Presentation transcript:

DO NOW 12/5/16 Use Google to define these terms IN YOUR NOTES Credit Installment loan Collateral Lien

GOALS Lesson 1 CONSUMER LOANS Banking 5/23/2018 Lesson 1 CONSUMER LOANS GOALS Define major terms associated with consumer lending Explain the difference between installment loans and open-end loans Explain the difference between a secured loan and an unsecured loan Chapter 6

What is Credit anyway? Credit is a promise to pay back money borrowed. Credit allows a person to make a purchase and delay payment until a future date. This type of transaction is a privilege and is bound by specific laws. Debtor is the person borrowing the money. Creditor is the person/company loaning the money or selling on credit.

INSTALLMENT LOANS An installment loan is a loan that is repaid over time with a set number of scheduled payments The term of loan may be as little as a few months and as long as 30 years Personal loans Automobile loans Home equity loans Education loans If I go to Bobs Auto Sales and I take a loan to buy a brand new Jeep Cherokee. Who is the debtor? Who is the creditor?

SECURED AND UNSECURED LOANS A secured loan is one in which some item of value backs the loan in case the borrower defaults on the loan. The item that secures the loan is called collateral. A lien is a legal claim to property to secure a debt. An unsecured loan is a loan backed only by the reputation and creditworthiness of the borrower. Unsecured loans are sometimes called signature loans.

LENDING TERMINOLOGY Principal is the amount borrowed. Interest is the amount you pay to use the principal. Fees are other charges for the loan. The finance charge is the total dollar amount to be paid for the loan. Total payments is the total amount a consumer must repay. Payment is the amount the borrower repays each specified period.

OPEN-END LOANS Credit cards Lines of credit Grace period - The amount of time you have to pay the bill in full and avoid any finance charges. Lines of credit Open-end credit agreements are advantageous to borrowers, as they exert more control over how much they borrow and when. In addition, interest is not usually charged on the part of the line of credit that is not used, which can lead to interest savings for the borrower

Would you lend your money to just anyone? 3 C’s of Credit Collateral An item of value that backs the loan in case the borrower defaults on the loan. The bank uses the collateral to recover the financial loss of an uncollected loan. If car is worth $10k, why would I loan you $15k? Capacity The debtor’s ability to pay back a loan. Does the debtor have a job? How long have you been working there? Character Refers to the debtor’s honesty and willingness to pay back a loan. Creditor’s take into account the reputation of paying back loans on time - i.e. Credit Score.

Exit Slip Explain the difference between an installment loan and an open-end loan. Explain the difference between a secured loan and an unsecured loan.