Using Consumer Loans Text by Vickie Bajtelsmit with Linda ...
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  • 1. Using Consumer Loans
    • Text by Vickie Bajtelsmit with Linda Rastelli
    • PowerPoints by Christine Mooney
    6-1
  • 2. Characteristics of Consumer Loans
    • Consumer loans have three characteristics. The first one is : Interest rates on consumer loans can either be fixed or variable.
    • A fixed rate loan, has the same rate of interest throughout the life of the loan.
    • A variable rate loan, has an interest rate which fluctuates along with a predetermined measure, such as the prime rate.
    • The prime rate is the rate bank charge to their most preferred customers.
    6-2
  • 3. Additional Characteristics
    • Loans may be single or installment payment loans. A single payment loan requires that the balance be paid in full at some point in the future, including the principal.
    • An installment loan allows borrowers to repay over time. An installment loan is in default when a required payment is overdue.
    • A secured loan gives the lender the right to take certain assets or property in the event the loan is not repaid. A loan not secured by collateral is unsecured.
    6-3
  • 4. Types of Consumer Loans 6-4 Rates on student loans tend to be more favorable than on other loans. To be eligible for a student loan you must be a U.S. citizen. Student loan – a loan made for the purposes of education. Lenders typically will limit the loan to a percentage of the current market value of the car. Automobile loan – a loan made for the purpose of buying an auto. It is secured by your home. They are usually installment loans payable over 5 to 15 years. Some of the interest on your loan may be tax deductible depending on your tax bracket. Home Equity Loan - A home equity loan is a loan for the difference between the market value of your home and the remaining balance on your mortgage. Characteristics Type
  • 5. Student loan Types and Characteristics
    • A subsidized loan is awarded on the basis on need and does not requires the payment of interest or repayment of principal until six months after graduation.
    • An unsubsidized loan accrues interest from the time they are awarded.
    6-5
  • 6. Sources of Consumer Loans
    • Most financial institutions offer one or more types of consumer loans. Many websites, such as, www.lendingtree.com and www.bankrate.com ., offer information on rates. For auto loans, try http://finance/yahoo.com/loan .
    6-6
  • 7. Various Sources
    • Depository institutions – These institutions offer the widest variety of consumer loans at the most favorable rates.
    • Consumer & Sale Finance Companies – Consumers who cannot borrow from a depository institution due to poor credit or insufficient credit, may consider a consumer finance company. The obtain funds from investors and usually charge a high interest rate.
    • Other Sources of Loans – You can also obtain loans through investment accounts, retirement plans and pawnshops. However, these loans are risky and could jeopardize your financial plan.
    6-7
  • 8. Managing Your Debt
    • For many consumers controlling their debt is the most difficult part of a financial plan. Here are some useful tips:
    • Don’t borrow money to pay for items you can’t afford.
    • Pay your credit balance in full by the due date.
    • Keep track of monthly expenditures to track your net cash flow.
    • Limit yourself to a smaller number of credit cards.
    6-8
  • 9. The Credit Quiz
    • Consider the signs of credit trouble, offered by consumer credit expert Greg Pahl, in his book, The Unofficial Guide to Beating Debt. If you answer “yes” to many or most of theses questions, you have a serious credit problem:
    • Are you spending increasing amounts of your income to pay your bills?
    • Are you at or over your credit limit?
    • Do you worry a lot about money?
    • These are just some of the necessary questions. Take the Quiz in your text and tally your “yes” answers.
    6-9
  • 10. Getting Out of Debt
    • To help approximate the impact of debt reduction on your budget, Figure 6-2, shown below, (insert Figure 6-2), shows the monthly payments necessary to reduce specific amounts of total indebtedness.
    6-10
  • 11.  
  • 12. Helpful Hints for Reducing Debt
    • Credit counselors suggest some of the following:
    • Obtain a debt consolidation loan at a lower rate.
    • Take a second job earmarked to pay down the debt.
    • Develop a zero based budget.
    • Live with your parents or a family member until the debt is paid off.
    • Sell assets.
    6-11
  • 13. Declaring personal Bankruptcy
    • Some people end up so deeply in debt the only alternative is to declare bankruptcy.
    • Bankruptcy is the legal right to ask a court of law to relieve you of certain debts and obligations. It a court grants you bankruptcy, your creditors divide your assets.
    6-12
  • 14. Types of Bankruptcy
    • There are two major forms of personal bankruptcy:
    • Chapter 7 – requires the liquidation, or sale, of most of the debtor’s assets. Under current law, the debtor is allowed to keep a small amount of home equity.
    • Chapter 13 – is a method of protecting a debtor from creditors’ claims while that person develops and implements a plan to repay his or her debts.
    6-13
  • 15. Results of Bankruptcy
    • Under the new bankruptcy law, most higher-income households are required to opt for Chapter 13 bankruptcy.
    • Under Chapter 13 bankruptcy, the plan which must be approved by the court, generally includes new payment arrangements with creditors for reduced balances and payments. Under Chapter 13, the debtor can generally keep all of his or her assets.
    6-14
  • 16. Copyright Notice
    • © 2008 John Wiley & Sons, Inc.
    • All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.
    • All clipart and photos courtesy of Microsoft.com, unless otherwise noted.
    6-15