L - Loans Module Overview

Loans Module Overview

Introduction

image with car, house and family, and graduation cap Want a new car or house? Planning to go to college? These are big ticket items that cost money that most people either do not have or do not wish to pay in full. That is where loans come into play. In this module, you will learn how loans work. You will discover the fees banks charge for borrowing and paying back loans over 5, 10, 20, or even 30 years. You will also learn about the process used by banks to ensure repayment of loans. Let's get started!

 

Essential Questions

  • How do loans work?
  • What do I need to get a loan?
  • What are the components of a loan?
  • Is it better to rent or buy a home?
  • Why does it take so long to pay back a home loan?
  • Should I get a new or used car?
  • How much money has to be paid each month on a car loan?
  • How will I pay for college?

 

Key Terms

  • loan: an amount of money borrowed and repaid with interest
  • fixed interest rate: interest rate that stays the same over the course of the loan
  • variable interest rate: interest rate that can change over the course of a loan
  • interest: money that is paid to the lender by the borrower for the use of the lender's money
  • principal: the original borrowed amount
  • equity: a home's market value less the outstanding mortgage balance
  • amortization schedule: a schedule for repaying the loan
  • mortgage: a loan used to purchase a home
  • down payment: the amount of money a buyer pays in cash for the purchase of a house
  • closing costs: fees paid in addition to the cost of the home
  • pre-payment penalties: fees designed to keep the borrower from paying the loan off early
  • credit rating: a ranking, typically expressed as a number or letter, based on one's credit history and used by financial institutions for loan and credit approval
  • escrow: property or money held by a third party until the terms of a contract are met
  • refinancing: paying off the original loan by taking out a new, typically more favorable loan
  • delinquent: past due on a scheduled loan payment
  • foreclosure: legal process that allows a lender to seize property if the mortgage loan is not paid - typically, the lender sells the property and applies the proceeds to the outstanding debt
  • trade-in value: amount the dealer gives you for the car you're providing as partial payment for the car you wish to purchase
  • book value: how much a particular car is worth based on its condition, mileage and other factors
  • lease: paying only a portion of the vehicle's sales price and returning it to the dealer at the end of the specified time
  • purchase: paying the car's full price and keeping it as long as you want

 

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