Personal Loans

Personal Loans a type of credit that is typically

started at the time of purchase for a specific asset

Common for purchases of $1,000 or more

Ex. car, motorcycle

Why take a personal loan? most of us do not have the money

saved to pay cash for large purchases

we may consider it wiser to invest it or use it for other needs

Down Payment a portion of the purchase paid up

front by the buyer

the loan makes up the difference between the total price and the down payment

Example You are saving for your first car.

When you get your license, you have $2,000 saved. The car you want to buy is $8,000.

You might make a $2,000 down payment and take a personal loan for the $6,000 difference.

Terms of a Loan the details of the repayment schedule

set up by the lender

a) the amount of the payment (a portion applied to interest, the rest toward principal)

b) interest rate charged

c) the number of months you will need to make payments to repay entire loan (typically 24 to 72 months)

The Personal Loan Process Banks, credit unions, other financial

institutions and even major auto companies offer personal loans.

Companies that sell expensive items such as appliances and recreational equipment may make financing available.

1. Fill out loan application Cosigner – someone who agrees to sign the

loan documenting responsibility for repaying the loan in the event that the other individual stops making payments

You will be required to provide info that will allow the lender to make a judgment about whether or not you will be able to pay back the loan• Income• Housing Expenses• SS# (credit history)

2. Obtain approval of the loan from the lender

Many businesses are prepared to approve/decline on-the-spot (encourages purchase)

3. Sign legal contract agreeing to the terms

Dollar amount of the loan Interest rate

i. APR – Annual Percentage Rate 1. required by law to be calculated the same

way by lenders2. factors in all costs of financing3. this is what you want to compare when you

shop around for rates

3. Sign legal contract agreeing to the terms (cont.)

Loan repayment schedule (including maturity date – date at

which the loan will be completely repaid)

Secured or unsecured

3. Sign legal contract agreeing to the terms (cont.)

I. Secured loans – collateral pledged that can be resold if you default on the loan

1. Collateral – an asset, usually the item purchased, that is repossessed

2. Default – to stop making payments

II. Unsecured loans – no collateral pledged, good credit history required