1. CREDIT 3 Credit and Loans

2. Types of Loans

Financial Institution

• Bank loan

• • Home loan: typically 15, 20, or 30 years

• • Home equity loan

• • • Already own a home

• • • Use home as security

• • • Both closed / open ended

• • Home improvement loan

• • • Help to make repairs/improvements to a home

• • • Closed ended, typically with a five year term

• • • Get home ready to sell

• • Vehicle loan

• • • Closed ended

• • • Typically 3 5 years

3. LOANS Finance Companies

Consumer finance companies:

• Businesses that specialize in making small or personal loans

• • Loans are available for those who cannot get credit elsewhere

• • • What does this mean for the consumer?

• Must borrow the money they lend and pay interest on it.

• Lender incurs cost for credit investigations and record keeping

4. Loans Payday Loans

Various financial options

• • • Check cashing

• • • Finance companies

• • • • Make small, short term, high interest rate loans

• • • Known as payday loans or cash advance loans

• • How much do you think you would pay?

• • • APR of the payday loans must be disclosed

• • • • Depending on the amount the actual APR might be 300%

Insurance Policy Loans

• • Policy holder can borrow money against the premiums already paid.

5. Loans Private

Loans given to friends / family

• Can be helpful, but be careful!!!Why???

• • Hints:

• • • • Keep loan small

• • • • Be prepared to prove that you can pay back the loan

• • • • Agree on interest rate

• • • • Agree on payment plan

• • • • Be specific about the terms of the loan

• • • • Put it in writing

• • • • Pay promptly

• • • • Get signed receipt for all payments (checks)

6. Other Loan Sources

High interest loans from credit companies

Pawnbroker

• Trade item of value for a sum of money

• Pb holds item for period of time, 30 days, during which the consumer can use the money.

• Consumer has to buy back the item at a higher price than pb paid

Loan Shark

• Unlicensed brokers who operate illegally and charge high interest

7. Loan Contract Provisions

Down Payment

• Portion of the purchase price paid in cash at the time of purchase

• • College:

Balloon Payment Cause!

• Final payment is much larger than other installment payments

• • Often lead to getting another loan to pay

8. Loan Contract Provisions

Acceleration Clause

• If you miss a payment for any reason, the merchant can demand full payment of balance

Add on Clause

• Installment credit for a couch

• Later use same credit for another purchase

• • Rent-A-Center

9. Loans small stuff

Once application is complete, it may take a day + to get answer

Once approved need to sign a contract

Credit life insurance

You have a right to cancel a loan up to three business days after close.

Loan contract will outline your payment schedule.

10. Debt Problems

Delinquent

• • Overdue for payment on something bought with credit

Default

• • Failure to fulfill the obligations of your loan

• • Typically describes more aggressive actions toward collecting debt

Repossession

• • Taking back of property due to failure to make loan or credit payments

11. Debt Problems

Collection Agency

• • Collects unpaid debt for others

• • Your credit report will reflect the fact that you have been sent to collections

• • Most agencies earn a percentage of the debt collected

Fair Debt Collection Act

• • Protects consumers against abusive practice of debt collectors

• • • • Harassment

• • • • Overcharging

• • • • Disclosing consumers to third parties

12. Debt Problems

Lien

• • A claim on a property to satisfy a debt

Garnishment

• • A legal with holding of a specified sum from a persons wages in order to collect a debt.

13. Climbing Out of Debt

Work with creditors

Self-help measures

Credit Counseling

Debt Consolidation

Bankruptcy

• • • • Chapter 7 selling of debtors property except that related to continuing their employment

• • • • Chapter 13 allows debtor to keep property, but must follow an approved payback plan

14. Rebuilding Credit

Work diligently towards repaying your debts!

Properly manage your budget / finances

Slowly begin to buy with credit

Only purchase items you can afford

Pay all bills on time

Dont buy things you cannot afford!!!!