1. Chapter 6 In-Class Notes

2. Background on Personal Loans Sources of Loans Chartered banks, finance companies, credit unions, family and friends Contents of a Loan Contract Amount of the loan Interest rate Loan repayment schedule Maturity or term Security Collateral Payday Loans Short-term loans at very high interest rates 6-2Copyright © 2009 Pearson Education Canada

3. Interest Rates on Personal Loans Annual Percentage Rate: measures the finance expenses, including interest and all other expenses, on a loan annually. Simple Interest: calculates interest payable as a percentage of the existing loan amount (or principal). Add-on Interest: calculates monthly loan payments after adding together interest and loan principal. 6-3Copyright © 2009 Pearson Education Canada

4. Home Equity Loan Allows homeowners to borrow against the equity in their homes Home Equity = Market Value of Home – Mortgage Balance Maximum Credit Limit = (Market Value of Home x 75%) – Mortgage Balance Risks Borrower may never get around to paying down the principal of the loan. Interest rates may rise to a point where the borrower is no longer able to afford the minimum interest-only payments. 6-4Copyright © 2009 Pearson Education Canada

5. Car Loans and Purchase versus Lease Decision Selecting a car means considering: Personal preference, price, condition, insurance, resale value, repair expenses, and financing rate Negotiate the price Make sound financing decisions Decide whether to buy or lease a car 6-5Copyright © 2009 Pearson Education Canada

6. Student Loans Obtained through the Canada Student Loans Program Set limit on how much students can borrow each year, based on assessed need Full-time students Loan repayment begins after education is completed Part-time students Must make interest payments while studying Student loans must still be paid back if you declare bankruptcy within 10 years of ceasing to be a student 6-6Copyright © 2009 Pearson Education Canada