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Loan To Own 1
Loan To Own 2
Purpose
Loan to Own provides general information on installment loans, including:
• Car loans
• Home equity loans
Loan To Own 3
Objectives
By the end of this course, you will be able to:
• Identify various types of installment loans.
• Explain why installment loans cost less than rent-to-own services.
• Identify the factors lenders use to make loan decisions.
Loan To Own 4
Objectives (Continued)
• Identify the questions to ask when purchasing a car.
• Describe the advantages and disadvantages of borrowing against a home.
Loan To Own 5
Installment Loans
Installment loans are loans that are repaid in equal monthly payments, or installments, for a specific period of time, usually several years.
Loan To Own 6
Types of Installment Loans
• Secured loan
• Unsecured loan
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Secured Loan
A secured installment loan is one where the borrower:
• Offers collateral for the loan.
• Gives up his or her right to the collateral if the loan is not paid back as agreed.
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Unsecured Loan
An unsecured loan is a loan that does not require collateral.
Loan To Own 9
Cost of Installment Loans
• Annual percentage rate (APR)
• Fixed rate loan
• Variable rate loan
• Finance charge
Loan To Own 10
Car Loans versus Car Leases
• Ownership potential
• Wear and tear
• Monthly payments
• Mileage limitations
• Auto insurance
• Cost
Loan To Own 11
Financing a Car
Getting a car loan = Financing a car
• Use the loan to purchase a new or used car.
• Car becomes collateral for the loan.
• The lender holds the car title.
• New car loans last 3 to 7 years; used car loans last 2 to 5 years.
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Where to Obtain a Car Loan
• Banks
• Credit unions
• Thrifts
• Finance companies
• Car dealerships
Loan To Own 13
Loan Pre-approval
The financial institution calculates how much money you can borrow to buy your car.
• It is a free service.
• It does not obligate you to accept a loan offer from the institution.
Loan To Own 14
When Dealers Offer Low Interest Rates
To get the lowest advertised rate, you might have to:
• 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.
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Participation Fees
Money that some dealer finance companies might charge to get a low interest rate.
Example:
To get a 2 percent APR, you pay a participation fee of $200.
Loan To Own 16
Beware of Dealer-Lender Relationships
When you ask for dealer financing, the dealer might call several lenders:
• A dealer might pick the lender that makes the most profit for the dealership.
• For referring you and other customers, the lender might pay money to the dealership.
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Car Title Loans
Short-term (usually 1 month) loans that allow you to use your car as collateral to borrow money.
Loan To Own 18
Home Equity Loans
A loan that allows you to borrow against the “equity” in your home.
Equity = The value of the home minus the debt
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Unsecured Installment Loans
Sometimes called personal or signature loans, these loans can be used for personal expenses such as:
• Bill consolidation
• Education expenses
• Medical expenses
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Benefits of Unsecured Installment Loans
• Fast approval time
• Interest rates lower than credit card rates
Loan To Own 21
The Four Cs of Loan Decision-Making
• Capacity
• Capital
• Character
• Collateral