chapter 9: personal loans

debt consolidation

simplifies your financial situation and record keeping because you only have to pay one bill each month instead of several

loan contract

a contract that specifies the terms of a loan, as agreed to by the borrower and the loaner

amortize

to repay the principal of a loan (the original amount lended out) through a series of equal payments. A loan repaid in this manner is said to be amortized.

maturity

the life/duration of the loan

collateral

assets of a borrower that back a secured loan in the event that the borrower defaults

secured loan

a loan that is backed or secured by a loan

unsecured loan

a loan that is not backed by collateral

cosigning

some borrowers are only able to obtain a personal loan if someone with a stronger credit history cosigns

add-on interest method

a method of determining the monthly payment on a loan; involves calculating interest that must be paid on the loan amount, adding together the interest and loan principal, and dividing by the number of payments

home equity loan

a loan where the equity in a home serves as collateral for the loan

equity of a home

the market value of a home minus the debt owed on the home

payday loans

a short-term loan provided in advance of a paycheck