HUMS 202 Lecture Notes - Lecture 9: Predatory Lending, Refund Anticipation Loan, Subprime Lending

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7 Feb 2017
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Installment Loan: repaid in equal monthly payments for specific period of time, used for big
purchases
1. Secured → borrower offers collateral and collateral taken if don’t repay loan
a. Benefit: lower interest rates
2. Unsecured → personal or signature loans, used for personal expenses like education of
medical; no collateral; one -- 5 yrs to pay off
a. Fast approval time and lower interest rates than credit cards, but have stricter
credit requirements and interest rates are higher
3. Fixed rate- loan: interest rate stays same throughout the loan
4. Finance charge: dollar amount for loan
Part of loan goes to repaying the principal and other goes to loan, principal portion reduced how
much owe lender
Rent-to-own services
-weekly payments → pay much more for an item than if paid with cash or installment plan
-not loans, no interest, no credit check
-high fees
-borrowing item from store, can purchase and set up pay plan
Understand requirements and cost estimate from insurance company before deciding to lease
or buy car
Getting car loan = financing a car, can be used to buy new or used car and the car serves as
collateral
-typically 3-5 yrs (loan)
-limit mileage to 12,000-15,000 a year
Auto service contract: promise to perform or pay for repairs and services, called extended
warranty, but service contract not a warranty
Beware of car title loans (using car as collateral, for other loans)
Home equity loan: borrowing against the value of home
-equity → value of home minus debt
-borrow about 80% of your home’s value
-one-time loan for lump sum offered @ fixed interest rate and repaid in equal monthly payments
-have three days to reconsider a signed home equity loan w/o penalty
Refund Anticipation Loan (RAL): short term loans secured by income tax refund, can take just
as long and cost even
Look at total dollar costs and apr for comparing loans
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