7 - 1 COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd Chapter 7 – Using Consumer Loans

7 - 2 Chapter 7 – Using Consumer Loans Chapter 7 - Learning Goals LG 1-Know when to use consumer loans and be able to differentiate between the major types. LG 2-Identify the various sources of consumer loans. LG 3-Choose the best loans by comparing finance charges, maturity, collateral, and other loan terms. LG 4-Evaluate the benefits of a demand loan. LG 5-Evaluate the benefits of an installment loan. LG 6-Determine the costs of installment loans and analyze whether it is better to pay cash or take out a loan. Learning Goals

7 - 3 Chapter 7 – Using Consumer Loans Internet Links and On-Line Resources Auto Loans: Negotiations Salted with Landmines – Bankrate.comAuto Loans: Negotiations Salted with Landmines Advice on financing a university education at CanLearn Web site.CanLearn Web site Products and services offered to consumers from HSBC Finance Corporation Canada.HSBC Finance Corporation Canada Information on payday loans in Canada.payday loans Compare the cost of different financing options at Government of Canada Industry Canada website – strategis.strategis Lending Tree lets you compare loan rates and fees from up to four lenders instantly.Lending Tree Web Links

7 - 4 Chapter 7 – Using Consumer Loans Key Chapter Terms and Definitions Consumer loans Collateral Registered Education Savings Plan (RESP) Registered Education Savings Plan (RESP) Demand loan Interim financing Installment loan Consumer finance company Consumer finance company Sales finance company Captive finance company Cash value (of life insurance) Cash value (of life insurance) Loan application Security interest Chattel mortgage Prepayment penalty Loan rollover Add-on method Credit life (or disability) insurance Credit life (or disability) insurance Terms

7 - 5 Chapter 7 – Using Consumer Loans Definitions Consumer loans Loans made for specific purposes using formally negotiated contracts that specify the borrowing terms and repayment. Terms

7 - 6 Chapter 7 – Using Consumer Loans Definitions Collateral An item of value used to secure the principal portion of a loan. Terms

7 - 7 Chapter 7 – Using Consumer Loans Definitions Registered Education Savings Plan (RESP) A government-sponsored investment vehicle that allows earnings to grow tax free as long as they are used to meet university education expenses. Terms

7 - 8 Chapter 7 – Using Consumer Loans Definitions Demand loan A loan made for a specified period of time, which the bank can require to be repaid at any time. Terms

7 - 9 Chapter 7 – Using Consumer Loans Definitions Interim financing The use of a demand loan to finance a purchase or pay bills in situations where they funds to be used for repayment are known to be forthcoming in the near future. Terms

Chapter 7 – Using Consumer Loans Definitions Installment loan A loan that is repaid in a series of fixed, scheduled payments rather than a lump sum. Terms

Chapter 7 – Using Consumer Loans Definitions Consumer finance company A firm that makes secured and unsecured personal loans to qualified individuals; also called a small loan company. Terms

Chapter 7 – Using Consumer Loans Definitions Sales finance company A firm that purchases notes drawn up by sellers of certain types of merchandise; typically big-ticket items. Terms

Chapter 7 – Using Consumer Loans Definitions Captive finance company A sales finance company that is owned by a manufacturer of big-ticket merchandise. For example, GMAC is a captive finance company owned by General Motors. Terms

Chapter 7 – Using Consumer Loans Definitions Cash value (of life insurance) An accumulation of savings in an insurance policy that can be used as a source of loan collateral. Terms

Chapter 7 – Using Consumer Loans Definitions Loan application An application that provides a lender with information about the purpose of the loan, and the applicant’s financial condition. Terms

Chapter 7 – Using Consumer Loans Definitions Security interest A legal claim that permits the lender, in event the borrower defaults, to liquidate the items serving as collateral to satisfy the obligation. Terms

Chapter 7 – Using Consumer Loans Definitions Chattel mortgage A mortgage on personal property given as security for the payment of an obligation. Terms

Chapter 7 – Using Consumer Loans Definitions Prepayment penalty An additional charge you may owe if you decide to pay off your loan prior to maturity. Terms

Chapter 7 – Using Consumer Loans Definitions Loan rollover The process of paying off a loan by taking out another loan. Terms

Chapter 7 – Using Consumer Loans Definitions Add-on method A method of calculating interest by computing finance charges on the original loan balance and then adding the interest to that balance. Terms

Chapter 7 – Using Consumer Loans Definitions Credit life (or disability) insurance A type of life (or disability) insurance in which the coverage decreases at the same rate as the loan balance. Terms

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