Personal Loans.

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Presentation transcript:

Personal Loans

Background on Personal Loans Usually obtained to finance a large purchase Has a specific repayment schedule Sources of loans Commercial banks, savings institutions, finance companies, credit unions, some automobile manufacturers, friends, or family members Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

Background on Personal Loans (cont’d) The personal loan process Application process Personal balance sheet Personal cash flow statement Loan contract: a contract that specifies the terms of a loan, as agreed to by the borrower and the lender Amount of the loan Interest rate Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

Background on Personal Loans (cont’d) Loan repayment schedule Amortize: to repay the principal of a loan through a series of equal payments Each payment includes part of the principal and part of the interest Maturity: the life or duration of the loan Longer maturity equals lower payments, but more interest is paid over the life of the loan Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

Background on Personal Loans (cont’d) Collateral: assets of a borrower that back a secured loan in the event that the borrower defaults Secured loan: a loan that is backed or secured by collateral Unsecured loan: a loan that is not backed by collateral Payday loan: a short-term loan provided in advance of a paycheck Cosigning is sometimes required if credit history is weak Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

Financial Planning Online: Loan Request Online Go to: http://www.lendingtree.com This Web site provides a set of questions that you can answer to specify the type of loan that you desire. You will then receive up to four loan offers from various financial institutions within the next business day Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

Background on Personal Loans (cont’d) Focus on Ethics: Predatory Lending Beware of illegal lending practices Lender charging high loan fees Lender provides home equity loan with the expectation of default so he can take ownership Lender ties other products to loan approval Lender includes balloon payment at end of loan Loan agreement includes confusing information Shop around for best loan terms Copyright © 2007 Pearson Addison-Wesley. All rights reserved.