Loan Basics
Perhaps you’ve casually lent or borrowed money from a friend before. But more formal loan arrangements from a financial institution come with far more terms you must understand in order to get a fair deal.� Here are the three things you need to know:
Basic 3 parts of a loan
Secured v. Unsecured Loans
Fixed v. Variable interest rates
Three Parts of a Loan (any loan)
Principal
Interest Rate
Time
The principal, the interest rate, and the loan term
Principal = �Refers to the baseline sum in financial transactions—the initial amount invested or borrowed
Interest Rate = �Refers to the interest which is charged to the borrower for the use of the loan
Time or Term = �Refers to the period of time for which the loan is due
Secured v. Unsecured Loans
Collateral
Assets that are pledged as security for a loan.
Secured v. Unsecured Loans
Secured Loans
car repossession
risk
Secured v. Unsecured Loans
Secured Loans
Also called �INSTALLMENT �LOANS
Secured v. Unsecured Loans
Unsecured Loans
Secured v. Unsecured Loans
Unsecured Loans
Also called
REVOLVING or �OPEN LOANS
Installment Loans
Revolving Credit
Three Parts of Loan
PRINCIPAL
INTEREST �RATE
TERM
Installment Loans
Revolving �Credit
Loan Amount
Whatever you spent today + yesterday…
6%
22%
10 Years
Always Open!
Interest Rates: Fixed v. Variable
Fixed = interest rate stays the same over duration of time
Variable = interest rate can move up or down over the duration of time.
Interest Rates: Fixed v. Variable
PRINCIPAL
INTEREST �RATE
TERM
Installment Loans
Revolving �Credit
Loan Amount
Whatever you spent today + yesterday…
6%
22%
10 Years
Always Open!
Fixed
Variable