Paying for college and cars

Paying for College and Cars

FDIC Money Smart for Young Adults

Building: Knowledge, Security, Confidence

2

Pre- Assessment

What is a secured loan?

a.A loan where the borrower offers collateral for a loan

b.A Loan where no collateral is needed

c.A low interest-rate loan

d.A loan that can be approved quickly

3

When you finance a car, the car then becomes ___________ for the loan.

a.Payment

b.Credit

c.Collateral

d.The title

4

Why should you want to avoid a rent-to-own situation?

a.Because you would pay a large interest rate.

b.Because it may cost you more in the end.

c. Because you are the legal owner of the property.

d.Because you do not have to purchase the item.

5

Which of the following do you NOT need to consider when deciding on whether to finance or lease a car?

a.Wear and tear

b.Monthly payments

c.Mileage limitations

d.Cost of fuel

6

What is the first step in applying for financial aid?

a.Talk to your financial advisor.

b.Complete the FASFA.

c.Apply for college.

d.Calculate the cost of college.

7

Purpose

• Car loans

• Student loans

The Paying for College and Cars module provides general information on installment loans, including:

8

Objectives

• Differentiate between secured and unsecured installment loans

• Explain why installment loans cost less than rent-to-own services

• Identify the factors lenders use to make loan decisions

• Identify questions to ask when buying a car• Describe college loans and loan programs

By the end of this course, you will be able to:

9

Todd Wonders about Loans for College…

10

Installment Loans

• Repaid in equal monthly payments

• Repaid for a specific period of time, usually several years

11

Types of Installment Loans

• Secured loan

• Unsecured loan

12

Secured Loans

• Offers collateral for the loan

• Gives up his or her right to the collateral if the loan is not paid back as agreed

The borrower:

13

Unsecured Installment Loans

• Sometimes called personal or signature loans

• Can be used for:– Education

expenses– Medical expenses

14

Benefits of Unsecured Installment Loans

• Fast approval time

• Interest rates lower than credit card rates

15

Activity 1: Unsecured Installment Loan Tips

Complete Activity 1 in your Participant Guide

– Review the loan tips

16

Cost Terms Related to Installment Loans

• Annual percentage rate (APR)

• Fixed-rate loan

• Variable-rate loan

• Finance charge

17

Activity 2: Cost of Installment Loans

Complete Activity 2 in your Participant Guide

– Review the terms– What terms are being described

in each scenario?

18

Activity 3: Consumer Loans vs. Rent-to-Own

Complete Activity 3 in your Participant Guide

– Break into 2 groups– Read through your section of

material– List and describe 5 reasons to

choose your payment method

19

The Four Cs

20

Activity 4: Loan Approval

Complete Activity 4 in your Participant Guide

Apply for a loan and see if the Loan Officer will approve you:

– What is the loan for?– How much is the loan?– How do you qualify?

21

Car Loans vs. Car Leases

• Ownership potential

• Wear and tear

• Monthly payments

• Mileage limitations

• Auto insurance

• Cost

22

Activity 5: Car Loans vs. Car Leases

Complete Activity 5 in your Participant Guide

Role play to prove your case to the other side of the class

– Car Salesman– Teen who wants to buy a car– Parent/Guardian

23

Financing a Car

• Car is collateral for the loan

• Lender holds the car title

• Amount you pay depends on the price of the car, the APR, and length of loan

“Getting a car loan” = “Financing a car”

24

Where to Obtain Car Loans

• Banks

• Credit unions

• Thrifts

• Finance companies

• Car dealerships

25

Loan Pre-approval

Loan pre-approval:

• Is a free service

• Does not obligate you to accept a loan offer from the institution

Lender figures out how much they will lend

26

When Dealers Offer Low Interest Rates

• Make a large down payment

• Agree to a short loan term, usually 3 years or less

• Have an excellent credit history

• Pay a participation fee

27

Participation Fees

• Example: To get a 2 percent APR, you pay a participation fee of $200

A charge to get a lower rate

28

Beware of Dealer-Lender Relationships

• Dealer might pick the lender that makes the most profit for the dealership

• Lender might pay money to the dealership for referring you and other customers

29

Activity 6: Beware of Dealer-Lender Relationships

Complete Activity 6 in your Participant Guide

– Review the instructions – Answer the questions

30

Activity 7: Auto Financing Tips

Complete Activity 7 in your Participant Guide

– Review the tips

31

Car Title Loans

• Short-term (usually 1 month) loans

• Use your car as collateral

• Watch out for high interest rates

32

Activity 8: Beware of Car Title Loans

Complete Activity 8 in your Participant Guide

– Review the instructions– Answer the questions

33

Cost of College Calculator

Income – Expenses = $ __________ (Your Balance)Expenses Income

Education $ Family Contribution $

Tuition Parents

Books You

Fees Friends/Relatives

Supplies

Transportation $ Financial Assistance $

Bus/Air/Train Summer Job Savings

Car Payment Other Savings

Car Repair/Insurance

Housing $ Financial Aid Grants $

Mortgage Pell

Dormitory/Rent FSEOG

Utlities ACG/ SMART

Telephone Institutional

State

Food $ Federal Direct Loans $

Room & Board Plan Subsidized Stafford

Groceries Unsubsidized

Stafford

Health $ Loans $

Insurance Federal Perkins

Doctor/Prescriptions FFEL

State

Personal/Miscellaneous $ Employment $

Laundry/Cleaning Federal Work-Study

Drug Store Items Institutional

Clothing Off-Campus

Entertainment $ Scholarships $

In-School Interest $ Other Income/Resources $

Direct Unsubsidized

Loan

Emergencies $

Other Expenses $

Credit Card Payment

Total Expenses $ Total Income $

34

Activity 9: Cost of College Calculator

Complete Activity 9 in your Participant Guide

–Review the items in the Cost of College Calculator

– Is there anything in the Expense column that you do not understand?

35

Tips to Getting Aid

• Read all instructions

• Apply early

• Complete tax returns

• File FAFSA electronically

• Locate any additional forms

36

Scholarships

• Designated for students who fit a particular profile

– Music– Arts– Athletics– Academics

37

Activity 10: Grant Programs

Complete Activity 10 in your Participant Guide

Review the information about:– Federal Pell Grant– FSEOG– Academic Competitiveness

Grant– National SMART Grant

38

Federal Loan Programs

• Complete the FAFSA to see if you qualify for federal programs

• Private Loans also available

39

Activity 11: Loan Programs

Complete Activity 11 in your Participant Guide

Review the information about various loan programs:

– Federal Work-Study– Federal Perkins Loans– Stafford Loans (FFELs and Direct

Loans)– PLUS Loans

40

Repay Your Loan

• Begin repayment after:– Graduation– Leaving school– Below half-time enrollment

• Exit counseling

• Consolidating student loans

41

Activity 12: Alternative Ways to Pay for College

Complete Activity 12 in your Participant Guide

– What are some other ways to pay for college?

– Record your responses

42

CONCLUSION: Even Ramón may need a Loan!

43

Paying for College and Cars

• Secured and unsecured loans• The cost of loans• The Four Cs of loan decisions• Car loans and auto financing• Scholarships and grants• Student loans

Congratulations! You have completed the Paying for College and Cars module. You have learned about:

44

Assess Your Knowledge

Don’t forget to complete the Knowledge Check in your

Participant Guide!

45

Thank you!

American Debt Counseling, Inc.American Debt Counseling, Inc.1 888 DEBT USA1 888 DEBT USA

www.americandebtcounseling.orgwww.americandebtcounseling.org