Types of Loans
This type of loan is specifically designed to help pay for college or other post-secondary education expenses.
What is a student loan?
When referring to a loan, this term describes the original amount of money borrowed.
What is the principal?
In the simple interest formula (I=PxRxT), P stands for this.
This type of loan is backed by collateral that the lender can seize if the borrower fails to make payments.
What is a secured loan?
The most effective strategy for avoiding excessive debt is to create one of these and borrow only what you can afford to repay.
What is a budget?
Maria wants to borrow money to purchase a used car. This is the type of loan she should apply for.
What is an auto loan?
Expressed as a percentage, this tells a borrower the cost of borrowing money over a period of time.
What is the interest rate?
In the simple interest formula (I=PxRxT), R stands for this.
(interest) rate
An auto loan is typically an example of this type of loan, because the car itself acts as collateral.
What is a secured loan?
Paying only this required amount each month on a high-interest credit card balance will prolong your debt and increase total interest costs significantly.
What is the minimum payment?
This long-term loan is generally used to purchase a house or real estate property.
What is a mortgage?
If a loan contract states a length of 5 years, this term describes the total time given to repay the loan according to its rules.
What is the term length/loan term (or something similar)?
In the simple interest formula (I=PxRxT), T stands for this.
time (in years)
Credit cards and personal loans without collateral are generally classified under this loan category.
What are unsecured loans?
This term describes the failure to meet the official repayment requirements of a loan agreement.
What is default (or defaulting)?
Unlike specific auto or mortgage loans, this type of loan provides general funds that a borrower can often use for a variety of personal expenses.
What is a personal loan?
A lender offers a loan with an interest rate of 6%. This percentage indicates what about what you're paying?
What is the cost/fee of borrowing the principal money?
When calculating simple interest using I=PxRxT, an interest rate given as a percentage (like 8%) must first be converted into this format before multiplying.
decimal (ex. 8%=0.08)
Lenders often charge higher interest rates on unsecured loans for this main reason.
What is higher risk/less collateral to recover if the borrower defaults?
This major record of your financial responsibility will be negatively affected if you repeatedly miss loan payments.
What is your credit history/score/report?
What is one place you can get a loan?
A bank, the government, a parent/friend, etc.
If you pay off a loan early or make extra payments toward the principal, you reduce this factor, which lowers the overall cost of the loan.
What is the total interest paid?
Jamal borrows $1,000 at a simple interest rate of 5% per year for 2 years. This is the total amount of interest he will pay.
I=PxRxT
What is $100?
If a borrower defaults on a secured mortgage, the bank can take back the property through this legal process.
What is foreclosure/repossession?
If Jordan stops making payments on his secured auto loan and goes into default, this action can be taken against his vehicle.
What is repossession?