Types of Consumer Borrowing• Two basic forms of borrowing:

• Loans• Credit Card accounts

• Loans can be secured or unsecured

Secured Loans• Secured loan: a loan that is backed by something of value

that is pledged to ensure payment (mortgage or car loan)• Collateral - the property pledged to back a loan

• Most secured loans are also installment loans

• Installment loan: a loan that is repaid in a certain number of payments with an interest rate that is fixed for a period of time that can last as long as the term of the loan (mortgages, student loans, car loan)• Also known as “closed-end credit”

Unsecured Loans• Unsecured loan: a loan not backed by collateral• Lender grants you credit based on your creditworthiness

alone• Generally charge higher interest rates• Most credit cards are considered unsecured loans

• Also known as “open-end credit”

Credit Card Accounts

• Two types of credit cards• Regular charge account: credit cards that require you to

pay your balance in full each month• American Express, Diner’s Club

• Revolving charge account: credit cards that allow you to carry a balance from one month to the next• Visa, MasterCard, Discover

• Credit cards have a credit limit – the maximum amount you are allowed to charge