CREDIT 3 Credit and Loans

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CREDIT 3Credit and Loans
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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

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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

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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.

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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)

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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

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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

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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

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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.

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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

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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

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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.

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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

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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!!!!