Module 14 Notes Econ

MR ZIRKLE VIDEOS
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Single payment - Make a single payment depending on time with loan and interest rate
and principal
Add-on loan - Similar to single payment except you pay each month of the three years
Installment loans - Pay off in equal installments with compounding interest
Predatory lending - When banks loaning tries to make as much money as possible
Amortization - First, the money pays off interest than principal to reduce the amount
needed to pay
Total financial costs - The cost of the interest on the principal

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Consumer loans - Loans involving formal contract which specifies the amount you are
borrowing and when you have to pay it back
Balloon loan - A lump sum of money paid at the end date of a loan contract plus interest
charges
Interim loans - Short-term funding that is accessed until long-term funding is acquired
Installment loans - Calls for the repayment of the interest and principal at regular
intervals. Called loan amortization, since the balance that the interest is based off of
decreases.
Secured loan - If loan isn’t met, an asset is seized and used as collateral
Unsecured loan - No collaterals, quite expensive, only given to people with excellent
credit histories
Fixed-rate interest loan - Interest is fixed throughout the entire loan

Variable-rate interest loan - Interest rate is tied to the market rate
Prime rate - Interest rate charged to most creditworthy consumers
Convertible loan - A variable-rate loan that can be converted into a fixed-rate loan at
specific dates in future
Lenders charge lower interest rates on short-term loans since there is a less probability
of a financial disaster to occur
Security agreement - An agreement that decides whether the lender or borrower has
control over what they are buying
In the note (the formal document), rights of lender and borrower in case of default are
written.
Agreement clauses:
● Insurance agreement clause - The borrower life insurance will pay off the loan in
the case of the death of the borrower
● Acceleration clause - If one payment is missed, entire loan comes due
immediately and collateral is seized
● Deficiency payments clause - If you default, lender can seize the security asset
and bill you for what is left and the costs
● Recourse clause - Defines what actions your lender can do to claim money from
you in case you default
Home equity loan - A loan that uses the borrower’s built up equity (the difference
between price and mortgage) as collateral against the loan. Generally you can borrow
from 50 to 85% of equity.
Advantages:
- Interest is tax deductible up to $750,000. Save the federal state bracket tax on the
interest
- They generally carry a lower interest rate and are considered less risky by lenders
Disadvantages:
- Puts home at risk
- Limits future financial flexibility, only one of these loans at a time
Automobile loan - Made on an automobile which is used as collateral, generally

short-term
Loan disclosure statement - Statement that provides APR and interest charges
associated with loan
Simple interest method - One of the two different ways loans are made. The total cost of a
loan is (principal x time x interest rate)
Discount method - The interest is multiplied by principal and is subtracted from principal,
which the difference is given to the customers.Then the customers pay back the principal
without any interest.
Payday loan - A loan of last resort. Money is given for a span of about 1-2 weeks and then
when money can come to repay the loan you can either cash it in or renew the loan,
which can cause 400-800% interest rates. Title loans also work similarly.
Add-on loans (like simple)

Installment simple (compound)
Least expensive loan is a family loan. Secured loans such as home equity loans are next.
More expensive sources include credit unions, savings and loans associations, and
commercial banks. Financing from retail stores is most expensive.
Debt limit ratio = (total monthly non-mortgage debt payments) / (total monthly take-home
pay)
Debt resolution rule - Pay all your outstanding debt every 4 years
Debt consolidation loan - A debt used to pay off all your current debts
Chapter 13 Bankruptcy (Wage Earner’s Plan):

- Design a plan to repay a majority of your debts
- The Chapter 13 is designed to cover normal living expenses while paying back
- Maintain title and possession of assets
- For creditors, it means controlled repayment of debt obligation with court
supervisors
- For you, it means relief from harassment of bill collectors
Chapter 7 Bankruptcy (Straight Bankruptcy):

- Given the opportunity to eliminate the debts and start again
- You must pass a test to see if you need this type of bankruptcy
- You will have to sell a good portion of assets
- Drastic step and courts will sell assets to creditors relieving you of debt
In funding your college education, you’ll want to understand the importance of your
school and major, know what the costs are, manage your money well, and repay your
loans without sacrificing your financial goals. In terms of saving for college, you’ll want
to make the most of tax-advantaged savings alternatives like 529 plans and Coverdell
Educational Savings Accounts (ESAs). If you have to borrow money, federal student
loans will most likely be the better choice.

Module 14 Notes Econ

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MR ZIRKLE VIDEOS

Installment loans - Pay off in equal installments with compounding interest

Total financial costs - The cost of the interest on the principal

Fixed-rate interest loan - Interest is fixed throughout the entire loan

Automobile loan - Made on an automobile which is used as collateral, generally

Add-on loans (like simple)

Chapter 13 Bankruptcy (Wage Earner’s Plan):

Chapter 7 Bankruptcy (Straight Bankruptcy):

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