Credit & Loans

What is Credit?

• Credit is the ability to borrow money with the understanding that it will be paid back later.

• Credit Score

  • Prediction of how likely you are to pay a loan back on time

  • Three major credit bureaus

    • Experian

    • TransUnion

    • Equifax

Your Credit Score

• Based on...

  • Payment history

  • Amounts owed

  • Length of credit history

  • New credit

  • Credit mix (types of credit)

What is a Loan?

• Money borrowed with the expectation to pay back the principal amount plus interest

• Principal- the original amount borrowed

• Interest- a percentage paid to borrow money

Types of Loans

• Student Loans

  • Pay for college tuition

• Mortgages

  • Purchase a home

• Small Business Loans

  • Start a small business

• Auto Loans

  • Buy a new car

• Payday Loans

  • Money to get you through to payday

Interest

• Price you pay to borrow money

• Must be paid in addition to the principal amount

• Rates may vary based on credit score

Variable vs. Fixed rates

• Variable Rate

  • Can change over the course of the loan

  • Adjusts based on a set index

  • May cause your monthly payment to change each month

• Fixed Rate

  • Remains the same throughout the course of the loan

  • Monthly payment remains the same

Secured vs. Unsecured Loans

• Secured loan

  • Collateral

    • An item of value the lender can take if a loan is not paid back

  • Lower interest rates

• Unsecured loan

  • No collateral

  • Higher interest rates

If I borrow $5,000...

• Principal- $5,000

• Interest Rate- 3.5%

• Loan Term- 5 years

• Amount Borrowed $5,000

• Interest Paid $457.52

• Monthly Payment $90.96

• Total paid to lender $5,457.52

If I borrow $5,000...

• Principal- $5,000

• Interest Rate- 3.5%

• Loan Term- 2 years

• Amount Borrowed $5,000

• Interest Paid $184.33

• Monthly Payment $216.01

• Total paid to lender $5,184.33