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By: Luke Magley
Loan Application
 Specifications
of the loan
 Amount, Rate, and Nper
 Purpose
 Your
for the Loan
 SSN, phone, employer, income/expenses,
Installment vs. Single Payment Loans
Installment Loans
Single Payment Loans
Interest and principal are paid
at the end of each period,
usually every month. Most
mortgages are installment loans
because many individuals would
have a hard time budgeting for
a single payment loan.
Interest and principal is paid at
maturity in a lump sum. An
example where a single
payment loan would be useful is
the construction of a home; the
money is used to build the home
then the sale of the home is
used to pay off the loan.
Consolidation Loans
Used to pay off all other debt and “consolidate” into one
Used when an individual has many debt payments
Can possibly lower the interest paid on all your debt and
extend the payments over a longer period of time
Kind of like a funnel!
Fixed vs. Adjustable Rate Mortgages
Fixed Mortgages
Adjustable Rate Mortgages
Also called “vanilla wafer”
mortgages because they are so
straightforward, these loans’
interest rates remain the same
throughout the term of the loan.
You can possibly confront
opportunity costs because if
interest rates drop, you could have
gotten a better deal with an ARM.
Also referred to as ARM’s, these
loans’ interest rates will rise and
fall periodically, depending upon
how the market is doing. These
can be risky because if interest
rates rise, you will be paying more
in interest than if you used a fixed
rate mortgage.
Where can I get a Personal Loan or
Commercial Banks – Where most consumer loans are
Credit Unions – Can give you a better rateon your loan
Bank of America, Wells Fargo, SunTrust, etc.
CFE Credit Union
Online – Gives you the ability to compare loans sideby-side
Shopping for Loans: What should I
Is it worth it?
 Buy
stuff that will “pay back” the loan
 STAY AWAY from short-lived consumables
The repayment period should NOT exceed the life
of the product!
Specifications of the loan
 Interest
rate, down payment, fees, etc.
Predatory Lending Practices
Financial institutions can take advantage of a
consumer in many ways:
 Excessive
 Prepayment penalties
 Unnecessary products
 Forced arbitration
 Steering and targeting
 Loan flipping
Federal Legislation Protecting
35 states have limits on prepayment penalties
The Truth in Lending Act ensures that consumers get
adequate information on their loans from financial
Fair Housing Act – Prohibits financial institutions
from discriminating because of race, color, religion,
national origin, sex, handicap, or family status.
Important Loan Features
Loan collateral
 Automobile,
jewelry, stocks, bonds, home, etc.
Loan maturity
 Single
payment or installment loan?
 Length of maturity
Loan repayment
 Are
there prepayment penalties?
Finance Charge and the APR
APR and interest rate are different because the APR
includes fees and penalties
Discount Method – Interest payable is deducted from
lending amount
$1000 – 5% loan … $950 is given to borrower and $1000
is paid back
Simple Interest – Interest is calculated daily and
because of leap years, you pay more interest than a
traditional mortgage. Also, there is no grace period.
Balloon Mortgages
The borrower will make payments in regular
periods for a short amount of time, then pay off the
rest in one “bullet” payment
May have a fixed or a
Floating rate
The Rule of 78
Uses predetermined interest on short-term loans
1+2+3+4+5+6+7+8+9+10+11+12 = 78
On first month, 12/78 of the finance charge is due.
Second month 11/78 of the finance charge is due
until on the twelfth month 78/78 (100%) of the
finance charge is due
BEWARE OF THIS!!! It could hurt you if you try to
pay off early