Money Management

Installment Loan: A loan that the borrower pays back over a pre-determined amount of time.

Term: The amount of time the borrower has to pay off the loan.

Interest Rate:

APR (Annual Percentage Rate): What the borrower will be paying annually for the loan, including interest rate and any annual fees and/or one-time charges.

Fixed Rate: A non-changing interest rate. Personal loans usually have fixed rates, meaning you’ll pay the same interest rate for the life of your loan.

Fixed Payments: The payment rate stays the same for the life of your loan (as long as you make on-time payments!)

Principal: The amount of money that is borrowed for a loan (pre-interest rate and APR).

Co-signer: A person who signs the loan along with you. Co-signers are needed if the borrower doesn’t have the credit score, or doesn’t meet some other qualification that the lending institution needs to feel secure in lending money.

Here is an article from the credit reporting agency Experian on personal loans:

Personal Loans: What to Know Before You Apply

Whether it’s taking out a loan for education, a new car, or for improvements on a home, taking out a loan is a big deal. Here’s some basic information on loans and what they entail. When you apply and are approved for a loan, one of the first things the lender is going to want to be sure of is that you can repay that loan in a timely fashion. So to start, here’s some information on secured and unsecured loans:

Secured: a secured loan is one that is backed by collateral, e.g. a car title, or a house. These types of loans are less of a risk for the lending institution because they already have a repayment option at the ready if the loan isn’t paid back monetarily (if one defaults on an auto loan, the lender can then seize your vehicle, if it’s a home mortgage, the lender can foreclose on your house).

Unsecured: An unsecured loan is one that is not backed by any collateral. While more of a risk for a lender, they counter this by charging a higher APR (annual percentage rate), and fees associated with the loan. Eligibility for an unsecured loan is usually based on the credit score of the applicant.

Kinds of Loans: 

Personal Loans: Money that is lent to a borrower for no specific purpose (as are auto loans or mortgage loans) than for what the borrower decides to use the money for. 

Auto Loans: A loan borrowed to pay for an automobile. This type of loan is for the full amount of the vehicle, minus any down-payment money given by the borrower. The vehicle itself is used as collateral, and can be repossessed if the borrower fails to make payments on the loan. 

Student Loans: A loan taken out for financing undergraduate or graduate school. These loans can be made by the government or by private lenders. 

Mortgage Loans: Akin to auto loans, this loan is for the price of a home. The full amount of the purchase price of the home is lent to the borrower, and if the borrower defaults (fails to make payments) the home can be foreclosed on. 

Home Equity Loan: This type of loan allows the individual to borrow against a percentage of the equity (amount owed versus amount the home is worth) of the home. The borrower can use the lump sum received for whatever purpose they would like, and this loan is repaid over a predetermined amount of time (generally between 5-30 years). 

Credit-builder Loan: This loan is meant for those trying to rebuild poor to bad credit. The borrower puts an amount of money into a savings account and makes payments monthly for 6-24 months. The lender should report payments to the three major credit reporting bureaus. 

Debt Consolidation Loans: A personal loan borrowed to consolidate and pay off accrued debt (generally credit card debt). These loans are useful because instead of paying multiple debts, the borrower pays just one lender. 

Payday Loans: A high-interest, low amount, short-term loan, designed to be paid back all at once by your next payday. In order to qualify for one of these loans, a borrower needs only proof of identity, proof of income, and a bank account. These types of loans are widely viewed as predatory lending, because they are often made to individuals with very low credit scores, who will not be able to pay the loan back in the time allotted, and thus fall deeper into debt.

Some signs of predatory lending are: loan terms that seen to good to be true, easy approval with few questions, no discussion of apr (annual percentage rate), no ability to build credit while repaying the loan, and bad customer reviews of the company.