Types of Consumer Borrowing Two basic forms of borrowing: Loans Credit Card accounts Loans can be secured or unsecured.

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Presentation transcript:

Types of Consumer Borrowing Two basic forms of borrowing: Loans Credit Card accounts Loans can be secured or unsecured

Secured Loans Secured loan: a loan that is backed by something of value that is pledged to ensure payment (mortgage or car loan) Collateral - the property pledged to back a loan Most secured loans are also installment loans Installment loan: a loan that is repaid in a certain number of payments with an interest rate that is fixed for a period of time that can last as long as the term of the loan (mortgages, student loans, car loan) Also known as “closed-end credit”

Unsecured Loans Unsecured loan: a loan not backed by collateral Lender grants you credit based on your creditworthiness alone Generally charge higher interest rates Most credit cards are considered unsecured loans Also known as “open-end credit”

Credit Card Accounts Two types of credit cards Regular charge account: credit cards that require you to pay your balance in full each month American Express, Diner’s Club Revolving charge account: credit cards that allow you to carry a balance from one month to the next Visa, MasterCard, Discover Credit cards have a credit limit – the maximum amount you are allowed to charge