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Introduction

• Instructor and student introductions

• Module overview

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Student Introductions

• Your name

• Your expectations, questions, and concerns about loans

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Purpose

Loan to Own provides general information on installment loans, including:

• Car loans

• Home equity loans

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Objectives

By the end of this course, you will be able to:

• Identify various types of installment loans.

• Explain why installment loans cost less than rent-to-own services.

• Identify the factors lenders use to make loan decisions.

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Objectives (Continued)

• Identify the questions to ask when purchasing a car.

• Describe the advantages and disadvantages of borrowing against a home.

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Agenda and Ground Rules

• 90 minutes long

• One 10-minute break

• Training methods

• Class participation

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Installment Loans

Installment loans are loans that are repaid in equal monthly payments, or installments, for a specific period of time, usually several years.

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Types of Installment Loans

• Secured loan

• Unsecured loan

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Secured Loan

A secured installment loan is one where the borrower:

• Offers collateral for the loan.

• Gives up his or her right to the collateral if the loan is not paid back as agreed.

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Unsecured Loan

An unsecured loan is a loan that does not require collateral.

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Cost of Installment Loans

• Annual percentage rate (APR)

• Fixed rate loan

• Variable rate loan

• Finance charge

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Car Loans versus Car Leases

• Ownership potential

• Wear and tear

• Monthly payments

• Mileage limitations

• Auto insurance

• Cost

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Financing a Car

Getting a car loan = Financing a car

• Use the loan to purchase a new or used car.

• Car becomes collateral for the loan.

• The lender holds the car title.

• New car loans last 3 to 7 years; used car loans last 2 to 5 years.

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Where to Obtain a Car Loan

• Banks

• Credit unions

• Thrifts

• Finance companies

• Car dealerships

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Loan Pre-approval

The financial institution calculates how much money you can borrow to buy your car.

• It is a free service.

• It does not obligate you to accept a loan offer from the institution.

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When Dealers Offer Low Interest Rates

To get the lowest advertised rate, you might have to:

• Make a large down payment.

• Agree to a short loan term, usually 3 years or less.

• Have an excellent credit history.

• Pay a participation fee.

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Participation Fees

Money that some dealer finance companies might charge to get a low interest rate.

Example:

To get a 2 percent APR, you pay a participation fee of $200.

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Beware of Dealer-Lender Relationships

When you ask for dealer financing, the dealer might call several lenders:

• A dealer might pick the lender that makes the most profit for the dealership.

• For referring you and other customers, the lender might pay money to the dealership.

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Car Title Loans

Short-term (usually 1 month) loans that allow you to use your car as collateral to borrow money.

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Home Equity Loans

A loan that allows you to borrow against the “equity” in your home.

Equity = The value of the home minus the debt

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Unsecured Installment Loans

Sometimes called personal or signature loans, these loans can be used for personal expenses such as:

• Bill consolidation

• Education expenses

• Medical expenses

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Benefits of Unsecured Installment Loans

• Fast approval time

• Interest rates lower than credit card rates

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The Four Cs of Loan Decision-Making

• Capacity

• Capital

• Character

• Collateral