Page 27 - FP-Sample-Flipbook
P. 27
Shop Around for Lenders Interest is the Key Common Types of Loans
Look for the following things when searching Interest is the amount you pay extra to the lender for Each type of loan has its own special rules and regulations. You can find more information on home loans,
for the best rate for a loan: the privilege of borrowing their money. The terms of the auto loans, and student loans in additional pamphlets in this series.
Interest rate on the loan interest will impact the amount you actually pay. Home Loan (Mortgage) – used to purchase a Student Education – low interest rate loans to
The monthly payment that you will be Principal – the amount you are asking to borrow home assist students with tuition and expenses of
required to make on the loan Interest rate – percentage of the principal that the Mortgage Refinancing – used to renegotiate education
The total amount of interest you will pay lender will charge you to the make the loan. the terms of an existing mortgage, to reduce Auto & Motorcycle – used to purchase a vehicle
on the loan. Time – how many years it is going to take to pay it off the amount of interest Auto Refinancing – used to renegotiate the
Repayment terms on the loan (some Fixed interest rate – the rate of interest doesn’t vary Home Equity Loan or Line of Credit – a line of terms of an existing auto loan to a lower
lenders charge penalties for early over the term of the loan. credit based on the amount of equity (value) interest rate
©2017 Learnovation®, LLC
repayment of the loan) Variable interest rate - an interest rate that changes in your home Personal Loan – an loan given without
Are there any loan fees charged to the based on the current rates set by the financial market, Debt Consolidation – used to combine several collateral (physical item) given to guarantee
borrower for processing and completing so the amount of interest you must pay can go up or separate higher-interest rate loans into one the loan
the loan transaction? down. This means that your total monthly loan payment lower-rate loan
The total cost of a loan is the actual money can go up or down as well.
For Evaluation Only
you borrow plus all of the interest you will pay. Simple interest rate - you pay a rate
Be sure the reason you are taking the loan is Annual Percentage Rate (APR) yearly rate of interest; Exercise - How Much Can You Afford? Calculating the Real Cost
important enough to warrant the extra money. calculated by multiplying the monthly interest rate by Look at the following scenarios. Are you in a good position to get a loan? Why or why not?
12 (number of months in a year) 1. Your car has broken down again, and it’s not cost effective to fix it. You need to buy a new car. What
choices do you have for purchasing a car now?
The Importance With simple interest, you pay interest on the total Factors to Consider: Money Sources: What Would I Have to Do to
amount borrowed. With compound interest, the interest
of Good Credit charge on the balance due is added to the balance of Afford This?
When you apply for a loan the lender will look the loan.
very carefully at your credit history and other Calculating Simple Interest:
factors to decide if you have the ability to pay
back the loan. Your credit history shows the Simple Interest = Principal X Rate X Time (in years) 2. Suppose you could get a loan right now for $7,500 to purchase the car. The interest rate is 3.5% over 36
amount and types of credit you have now and months. If you were charged simple interest, what would be the total cost of the car? Divide that cost over
had in the past, your payment history, and any Joe owes $24,000 in student loans. the 36 months. What is your monthly payment?
concerns from other lenders. The better your The interest rate on his loans is Total Interest Total Cost of Car Monthly Payment
credit history, the more opportunities you have 5.5%. He will be paying it off in 10
for borrowing money for those large purchases. years. How much will Joe be paying in
See pamphlet F14 for more information on total?______________
credit reports. 24000 X.055 X 10 =13,200 +24,000 = $37,200 Total 7500 X.035 X 3 (36 months - 3 years) =787.50 (interest) + 7,500 = $8,287.50 Total Cost /36 = 230.21 monthly payments
