Consumer Loans - Staunton River High School

Borrowing Money
Personal Loans
Financing a Car
Leasing vs. Buying a car
Applying for a Loan
Simple contracts
Consumer Loans
• Why is the interest rate of a loan
one of the most important things
to consider when shopping around
for loans?
• Drastically change the total
• More you pay
• Have to think about it
• How does Truth In Lending protect
consumers when shopping for a
• Protected from harm
• Disclosure of interest rate
• Make a good choice on a good
Consumer Loans
• Loans can be used for:
• Car
• College
• House
• Interest- The difference between
the amount paid over the lifetime
of a loan, that is compounded n
times in a given year, and the
principal amount borrowed is
defined as the interest.
• Service Charge- A service charge is
the sum of lender fees for taking
out a loan.
Consumer Loans
• Finance charge is the total cost of
taking out a loan, which includes
the interest paid over the lifetime
of the loan and any service fees
applied by the lender.
Consumer Loans
• Carter borrowed $5,000 on 3 year loan at 12% interest. His monthly
payments were $166.07. How much did Carter pay in interest?
• Total cost= (166.07)(12)(3) = $5,978.52
• Interest = 5978.52 – 5,000
• = $978.52
Consumer Loans
• Interest + Service Charge = Finance Charge
Calculate finance charges
Personal Loans
• When taking out a personal loan,
why is it important to take out the
least amount of money necessary?
• When compared to a home equity
loan or mortgage, why is a
personal loan not the best choice?
• Higher interest rate
• If there was extra principal to be
paid the interest to be paid would
be higher
• Unsecure
• Collateral
• Higher interest
Personal Loans
• secured loan is a loan that is
backed by some form of collateral
provided by the borrower.
• unsecured loan is a loan that is not
backed by any form of collateral
• Repayment is the process of
paying back borrowed money.
Personal Loans
• Collateral is an asset that a
borrower pledges to a lender in
order to secure a loan.
• Finance charge is the total cost of
taking out a loan, which includes
the interest paid over the lifetime
of the loan and any service fees
applied by the lender.
Personal Loans
• Calculating the Monthly
• Determine the monthly
payment of a $4,500 loan at
12% interest for 48 months.
• PV- $4,500
• i- 0.12
• N-48
Personal Loans
• Calculating the Finance Charge
• (118.50) (48) = $5688
• Determine the monthly payment
of a $4,500 loan at 12% interest for
48 months.
• $5688 – 4500 =
• Using collateral
• $1188
What is your dream car?
Finding a Car
• You found your new car. Now
• Amortization is the reduction of a
debt over time by making periodic
payments, of which, a portion of
each payment goes towards the
principal and the interest.
• title is a document provided by a
qualified source stating a legal
claim of ownership over real and
personal property.
Finding a Car
• Why is the APR (Annual
Percentage Rate) considered the
most important factor to be
mindful of in a car loan?
• Determine True cost
• Compare loans
• Choose right advantage
• When is taking a zero percent APR
option more beneficial than a large
• If you save over the course of a
• Greater than an instant rebate
Finding a Car
• Auto insurance is insurance
purchased by the owner of a
vehicle to cover losses due to
traffic accidents or theft
• Vehicle registration is the process
of registering a vehicle with a
government authority.
Finding a Car
• Typical Base price of a vehicle is
around $15,000
• Say you place a down payment of
20% with sales tax of 7.1%
• $15,000 * 0.20 = $3,000
• 15,000 * 0.071 = $1,065
• registration fees - $1,470
• documentation fees $59
• You end up totaling $17,594 in
Financing you new car.
Finding a Car
How are you going to pay for your
Leasing vs. Buying a Car
• If a person wanted to purchase
their dream car, and keep it for
many years, should they lease or
buy? Why?
• Buy it
• Paid off
• Less overall
• What is a disadvantage to having a
limited number of miles in your
lease contract?
• If you drive more than the mileage
• You don’t get credit for any
mileage not used.
Leasing or buying a Car
• lease is a contract stating, from
one individual to another, the
terms of use of real or personal
property for a designated period
of time in return for payment or
other forms of compensation.
• Depreciation is the decrease in the
value of real or personal property
over a period of time.
• Security deposit is an up-front cash
payment to protect the dealer
from damage to the vehicle and is
refunded to the borrower at the
end of the lease.
Leasing or buying a Car
• Vehicle registration is the process
of registering a vehicle with a
government authority.
• Acquisition fee is an administration
fee charged by the leasing
• disposition fee, set by the car lease
company, is due at the end of the
lease to compensate the leasing
company for the expense of selling
or otherwise disposing of a
Leasing vs. Buying a Car
• Money factor is the interest rate
the lease is based upon. It is
computed by dividing the annual
percentage rate by 2400.
• Residual is the value of the car at
the end of the lease term.
Leasing vs. Buying a Car
• Jennifer is leasing a car from a
local auto retailer. The terms of
the lease include a 9% interest rate
for 36 months with a residual value
of 57%. The MSRP for the car
Jennifer is leasing is $17,500. What
will Jennifer’s monthly lease
payment be?
Leasing vs. Buying a Car
Applying for a Loan
• Complete the following:
• Own Home?
• Rent?
• You the owner?
• How many bedrooms?
• How many bathrooms?
• Man-Cave or Trophy room?
Applying for a Loan
• Why is credit history such an
important part about being
considered for a loan?
• How would a bigger down
payment be beneficial to
• Responsibility
• Make payments
• On time
• Money toward principal
• Decrease monthly payment
Applying for a Loan
• Debt-to-income ratio is a personal
finance measure that compares an
individual's debt payments to the
income he or she generates.
• Credit score is a numerical value of
a person's credit files that directly
relates to an individual’s
• Credit history is a detailed record
of an individual’s borrowing and
repayment history, including
information regarding late
payments or bankruptcy.
Applying for a Loan
• Collateral is an asset that a
borrower pledges to a lender in
order to secure a loan.
• cosigner is a person that pledges
to pay off the debt of an
individual, for which they have
cosigned, in the event that the
borrower is unable to pay off the
Applying for a Loan
Request a credit report
Resolve past due accounts
Apply for a lower loan amount
Pay down some of your debt
Have a cosigner apply for the loan
with you
• Try applying at a different bank
• Things to take into consideration:
Monthly debt payments
Monthly income
Debt to income ratio
What make a contract official?
Simple Contracts
• A loan agreement is a document
that details the conditions of the
loan as agreed upon by the lender
and the borrower.
• Consideration is a legal obligation to
exchange services or goods as
stated and agreed upon
contractually by all party members
associated with a contract.
• Meeting of the minds is the act of
reaching a common understanding
between all members associated
with a contract regarding the terms
and conditions under which the
contract is established.
Simple Contracts
• A written contract is a contract that
states, in writing, the terms and
conditions in which an individual
agrees upon to enter into a
contractual agreement.
• An oral contract is a contract that
presents its terms and conditions
and the agreement of these terms
and conditions orally, rather than in
• A penalty is an act imposed, by one
party member onto another in a
contractual agreement, when a
failure to meet the terms and
conditions of the contract occurs.
Simple Contracts
• Why is understanding the terms of
a contract important for both
parties involved?
• Certain of obligations
• Aware of penalties
• What elements are required for a
legally valid contract?
• All parties must agree
• Exchanged promises
• Some of value to exchange
• Money
• Japan business etiquette
• Products
• Services
• Etc.

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