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Research Personal Finance: Loans

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Loan Payment

Loan Information

  • Loans can be both good and bad
    • Types of loans include: student, auto, home, personal, and payday loans
    • All loans have different terms  - the terms of each loan is described on the promissory note
      • Know what you’re signing off on!!!
        • Fees and penalties (late fees, paying off loan early, etc.)
        • The repayment schedule
          • The repayment schedule determines the monthly amount and how long you will be paying on a loan
        • Interest rate and type of interest (fixed v variable)
          • Fixed
            • Same rate for the lifetime of the loan
            • Most risk adverse option
          • Variable
            • Interest rate can change from month to month or year to year
            • In today’s market the rate will most likely be very low, but as the economy improves interest rates increase
            • When your rate increases your monthly payment goes up
    • Know your debt
  • Repayment Schedule
    • Differences in time frame to pay back loan
    • See handout example
  • Principal v Interest
    • Principal is the amount you paid for an item
      • Extra payments on top of minimum go directly to principle to reduce amount of interest paid and reduce total time frame
    • Interest is the amount to pay a bank or lender for allowing you to borrow the money to receive the item before paying in full for it
      • Interest is recalculated each month based on the amount of principle left at that point in time
      • Therefore, the amount of interest being paid is higher at the beginning of a loan and less at the end of the loan repayment period
    • See the attached handouts for financing a car and purchasing your first home

Car Loan Repayment Examples

Helpful Links