1. Personal Loans

2. 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
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3. 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
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4. 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
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5. 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
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6. Copyright © 2007 Pearson Addison-Wesley. All rights reserved.

7. Financial Planning Online: Loan Request Online
Go to:
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.

8. 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
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