5.02 Loan Summary

Types of Loans

• Student loans, mortgages, auto loans, small business loans, payday loans (not recommended).
• Loans help people pay for things they can't afford upfront.

Loan Structure

• Principal: Amount borrowed.
• Interest Rate: Percentage charged by the lender.
• Term: Time to pay back the loan.

Secured vs. Unsecured Loans

• Secured Loans: Protected by collateral (e.g., house, vehicle). Lower interest rates due to less risk for the lender.
• Unsecured Loans: Not protected by collateral.

Factors Influencing Interest Rates

• Credit score: Higher scores mean lower rates.
• Loan amount and term: Larger amounts and longer terms typically result in higher rates.
• Employment history and existing debts influence rates.
• Relationship with the financial institution.

Co-signers

• A cosigner is responsible for repayment if the borrower defaults.
• Co-signing can affect the cosigner's credit history.

Fixed vs. Variable Rates

• Fixed Rates: Stay the same throughout the loan term, making budgeting easier.
• Variable Rates: Based on an index; rates can increase or decrease.