Lesson 3. Consumer Loans and Credit Cards & Stocks, Bonds, and Mutual Funds

CONSUMER LOANS

• Loans given to customers for personal, family, or household purposes.

• They are used to finance specific consumer needs or wants.

SECURED LOAN, UNSECURED LOANS

TWO TYPES OF CONSUMER LOANS

SECURED LOANS

Loans that are acquired with collateral (an asset the lender can take if you don't pay).

Examples: Mortgages, home equity lines of credit, and auto loans.

Usually have a lower interest rate and higher loan amount because the risk for the lender is lower.

UNSECURED LOANS 

Loans that are acquired without collateral.

Examples: Credit cards, personal loans, and student loans.

Usually have a higher interest rate and smaller loan amount because the risk for the lender is higher.

CREDIT CARD LOANS

• A credit card is an example of an unsecured consumer loan.

• It offers a line of credit, which is a short-term revolving loan facility.

• Purchases made with the card create a debt.

• This debt typically does not incur interest until the grace period (the time between your purchase and your payment due date) has expired.

• You must make at least the minimum payment every month.

STOCKS

An equity investment that represents a claim on a part of a corporation's assets and earnings. When you buy a stock, you own a small piece of the company.

COMMON STOCKS, PREFERRED STOCKS 

two types of stocks

COMMON STOCKS

The owner is usually entitled to vote at shareholder meetings and receive dividends (a share of the profits) based on the board of directors' decision.

PREFERRED STOCKS

▪ Shareholders have no voting rights.

▪ They have a greater claim on company assets.

▪ Dividends are paid to preferred stockholders before common

stockholders.

▪ Dividends are fixed and paid regularly.

BONDS

A fixed-income investment where you lend your money to an entity (like a government or corporation) for a fixed period.

The entity promises to pay you back in full, with regular interest payments.

o Generally viewed as safer than stocks.

o Interest payments can sometimes be higher than stock dividends.

MUTUAL FUNDS

An investment where many investors pool their resources (money) together to invest in a diversified collection of assets (like various stocks, bonds, etc.).

STOCK OR EQUITY FUND, BONDS FUND, BALANCED FUND, MONEY MARKET FUND 

Basic Types of Mutual Funds

STOCK OR EQUITY FUND 

o Invests in stocks of corporations (e.g., those listed on the Philippine Stock Exchange).

o Has the highest possibility of growth but also the highest amount of risk.

BONDS FUND

o Invests in fixed-income securities like treasury notes, T-bills, or corporate bonds.

o Growth is conservative, and the possibility of loss is very low.

BALANCED FUND

o A mixture of both equity (stock) and bond funds.

o The return is normally somewhere between the return of a stock fund and a bond fund.

MONEY MARKET FUND

o Similar to a bond fund but invests in shorter-term debt.