1. Loan To Own

2. Loan To Own 2 What is an Installment Loan? A loan that is repaid in equal monthly payments/installments for a specific period of time What items can be purchased with an installment loan? Cars Homes Student Loan Motorcycle

3. Loan To Own 3 Secured Installment Loans Requires collateral or co-signer Usually has lower interest rates than unsecured loans A loan with collateral means the lender has security interest in the property pledged until loan paid in full If the borrower fails to repay the loan, the lender can then seize the collateral by repossessing the collateral

4. Loan To Own 4 Secured Installment Loans If you are unable to repay the loan and the sale of the collateral is insufficient to cover the balance, you are still responsible for: The remaining balance Any fees and interest associated with the loan

5. Loan To Own 5 Unsecured Installment Loan NOT secured by collateral Tougher lending standards than secured loans Personal Loans Private Student Loans

6. Loan To Own 6 Cost of Installment Loans 1.Dollar amount the loan will cost, including: interest, service charges, and loan fees Answer: Finance charges 2.Loan with interest rate that might change during any period of the loan Answer: Variable-rate loan APRFixed-rate loan Finance ChargesVariable-rate loan APRFixed-rate loan Finance ChargesVariable-rate loan

7. Loan To Own 7 Cost of Installment Loans 3.Cost of borrowing money on a yearly basis Answer: APR 4.Loan with interest rate that stays the same throughout the term of the loan Answer: Fixed-rate loan APRFixed-rate loan Finance ChargesVariable-rate loan APRFixed-rate loan Finance ChargesVariable-rate loan

8. Loan To Own 8 Why Do Borrowers Prefer Installment Loans? Equal monthly payment amount Fixed repayment period 12, 14, 36, 48, 60 or 72 months (Vehicle Loans) 180 months or 360 months (Mortgage Loans) Lower rates than revolving credit Decreasing balance during loan term because payment includes principal Simple Interest Loan Amortization Chart (BANKRATE.COM)

9. Loan To Own 9 Purchasing or Leasing a Car Second most expensive purchase for most consumers What are some questions to ask yourself when looking for a car? Should I get a new or used car? Should I lease or buy? How much can I afford? Should I trade in my old car?

10. Loan To Own 10 Car Loans Versus Car Leases Consider: Ownership potential Wear and tear Monthly payments Mileage limitations Auto insurance Cost

11. Loan To Own 11 Financing a Car The car is the collateral for the loan The title indicates who owns the car When considering a car loan: Know the costs and how much you need to borrow Shop for the best deal Get Pre-Approved financing to make sure you don’t buy more car than you can afford Negotiate with dealer for the best price Know the amount of down payment required Investigate trade-in allowance (KBB.COM)

12. Loan To Own 12 Where to Obtain Car Loans Banks Credit Unions Finance Companies Car Dealerships

13. Loan To Own 13 Buying A Car Things to avoid while shopping for a car: 1. Do not show enthusiasm! Dealers take advantage 2. Never buy a car in a hurry! 3. Avoid being switched to a lease without doing your homework 5. Do not trade in your car without knowing its value in advance 6. Avoid financing automatically at a dealership

14. Loan To Own 14 When Dealers Offer Low Interest Rates The best deal may require: Large down payment Short loan term (3 years or less) Excellent credit history Participation fee

15. Loan To Own 15 Low Interest Rates Ask about: Price of low-rate financing Advantages of paying with cash/using your own financing Down payment required Limits on the length of the loan Balloon payments, if due at the end of the loan

16. Loan To Own 16 Special Promotions Ask about: Trade-in allowance Limits on special offers Meaning of dealer’s invoice

17. Loan To Own 17 Buying a Used Car Benefits of Used Cars Used cars do not depreciate as rapidly compared to new cars. One year old vehicles are about 20-30% cheaper than new ones. Used vehicles are sometimes still covered by extended warranties. You can trace the history of the car using the Vehicle Identification Number (VIN). Some CU’s offer new car rates on used vehicles.

18. Loan To Own 18 Buying a Used Card Have an independent mechanic check out a used car before you buy it. Ask questions – pay attention to road noise, handling, brakes, seating comfort, etc. Order report on used vehicle from carfax.com

19. Loan To Own 19 Using the Web Web sites make car shopping a little easier. Do your homework on sites such as KellyBlueBook.com. Check online customer satisfaction and safety ratings. Web sites are good for researching, but not necessarily for car buying. Be careful, and only deal with people you can trust.

20. Loan To Own 20 Auto Dealer Extras Extended Warranties (Can run at same time as New Car Warranties) Fabric and Paint Protection Rustproofing Maintenance Plans Ding Protection GAP Insurance Gap insurance covers the difference between what the car is worth and what you owe on the car. It comes into play if the car is stolen or totaled (damaged to the point that repair would cost more than the car is worth) while the owner is still making payments. $300-$700

21. Loan To Own 21 Auto Service Contracts A promise to perform (or pay for) certain repairs or services Ask questions before buying auto service contracts.

22. Loan To Own 22 Used Car: Warranty Protection Look for the Buyer’s Guide sticker to indicate whether the vehicle is being sold: With a warranty With implied warranties “As Is”

23. Loan To Own 23 Alternative Fueled Vehicles Before buying or leasing, consider: Fuel type and availability Operating costs Performance/convenience Energy security/renewability Emissions Tax breaks

24. Loan To Own 24 Structuring a Car Loan Make as large a down payment as possible Consider the total cost of the loan Be cautious about taking on an auto loan term of 5 years or more Activity 1: Calculating the Cost Worksheet

25. Loan To Own 25 Calculating the Cost Using Standard Calculators Three variables are required to calculate the cost of a loan: Principal loan amount APR Time period Using a standard calculator does not provide exact results, just estimates

26. Loan To Own 26 Equations To estimate the interest paid: Principal loan amount * APR * Time period = Interest paid To find the total loan amount: Interest paid + Principal loan amount = Total loan amount To find the estimated monthly payment: Total loan amount/number of payments = Estimated monthly payment

27. Loan To Own 27 Calculating the Cost Joe has decided to purchase an automobile Negotiated price - $7,500 Down payment - $2,500 APR – 8% Time Period – 3 years What is it really going to cost?

28. Loan To Own 28 Calculating the Cost $7,500 - $2,500 = $5,000 (Negotiated price – Down payment = Principal loan amount) $5,000 over 3 years at 8% APR Step 1: Estimate the Interest Paid (Principal loan amount * APR * Time Period = Interest Paid Principal loan amount: 5,000 Time period: 3 years (3*12 = 36 payments) APR: 8% $5,000 *.08 * 3 = $1,200 Estimated interest paid: $1,200 Step 2: Find the total loan amount $1,200 + $5,000 = $6,200 (Interest paid + principal loan amount = Total loan amount)

29. Loan To Own 29 What’s The Real Cost? Total loan amount = $6,200 Total purchasing cost = total loan amount + down payment $6,200+ $2,500 = $8,700

30. Loan To Own 30 Down Payment How does the cost change with different down payment amounts?

31. Loan To Own 31 Down Payments Calculate the cost of a $7,500 car with an 8% APR over 36 months (3 years): $1,000 down payment $2,500 down payment What are the monthly payments? How much interest is paid? What is the total purchasing cost?

32. Loan To Own 32 Example #1 – $1,000 Down Payment $7,500 - $1,000 = $6,500 (Negotiated price – Down payment = Principal loan amount) $6,500 over 3 years at 8% APR Step 1: Estimate the interest paid Principal loan amount: $6,500 Time period: 36 months (3 years) APR: 8% $6,500 *.08 * 3 = $1,560 estimated interest paid (Principal loan amount * APR * Time period = Interest Paid) Step 2: Find the total loan amount $1,560 + $6,500 = $8,060 (Interest paid + Principal loan amount = total loan amount) Step 3: Find the estimated monthly payment $8,060 / 36 = $223 (Total loan amount / Number of payments = Estimated monthly payment)

33. Loan To Own 33 Example #2 - $2,500 Down Payment $7,500 - $2,500 = $5,000 (Negotiated price – Down payment = Principal loan amount) $5,000 over 3 years at 8% APR Step 1: Estimate the interest paid Principal loan amount: $5,000 Time period: 36 months (3 years) APR: 8% $5,000 *.08 * 3 = $1,200 estimated interest paid (Principal loan amount * APR * Time period = Interest Paid) Step 2: Find the total loan amount $1,200 + $5,000 = $6,200 (Interest paid + Principal loan amount = total loan amount) Step 3: Find the estimated monthly payment $6,200 / 36 = $172 (Total loan amount / Number of payments = Estimated monthly payment)

34. Loan To Own 34 Down Payments Example #1 - $1,000 down payment Principal loan amount - $6,500 Monthly payment - $223 Interest paid - $1,560 Total purchasing cost - $9,060 Example #2 - $2,500 down payment Principal loan amount - $5,000 Monthly payment - $172 Interest paid - $1,200 Total purchasing cost - $8,700 Price Difference - $360 The higher the down payment, the lower the principal loan amount.

35. Loan To Own 35 Annual Percentage Rate (APR) How does the cost change with different APRs?

36. Loan To Own 36 APRs Calculate the cost of a $7,500 car with a $2,500 down payment over 36 months (3 years) at: 8% APR 10% APR What are the monthly payments? How much interest is paid? What is the total purchasing cost?

37. Loan To Own 37 Example #3 – APR 8% $7,500 - $2,500 = $5,000 (Negotiated price – Down payment = Principal loan amount) $5,000 over 3 years at 8% APR Step 1: Estimate the interest paid Principal loan amount: $5,000 Time period: 36 months (3 years) APR: 8% $5,000 *.08 * 3 = $1,200 estimated interest paid (Principal loan amount * APR * Time period = Interest Paid) Step 2: Find the total loan amount $1,200 + $5,000 = $6,200 (Interest paid + Principal loan amount = total loan amount) Step 3: Find the estimated monthly payment $6,200 / 36 = $172 (Total loan amount / Number of payments = Estimated monthly payment)

38. Loan To Own 38 Example #4 – APR 10% $7,500 - $2,500 = $5,000 (Negotiated price – Down payment = Principal loan amount) $5,000 over 3 years at 10% APR Step 1: Estimate the interest paid Principal loan amount: $5,000 Time period: 36 months (3 years) APR: 10% $5,000 *.10 * 3 = $1,500 estimated interest paid (Principal loan amount * APR * Time period = Interest Paid) Step 2: Find the total loan amount $1,500 + $5,000 = $6,500 (Interest paid + Principal loan amount = total loan amount) Step 3: Find the estimated monthly payment $6,500 / 36 = $180 (Total loan amount / Number of payments = Estimated monthly payment)

39. Loan To Own 39 APRs Example #3 – 8% APR Monthly payments - $172 Interest paid - $1,200 Total purchasing cost - $8,700 Example #4 - 10% APR Monthly payments - $180 Interest paid - $1,500 Total purchasing cost - $9,000 Price Difference - $300 The higher the APR, the more interest paid.

40. Loan To Own 40 Time Period How does the cost change with different time periods?

41. Loan To Own 41 Time Periods Calculate the cost of a $7,500 car with a $2,500 down payment with an 8% APR over: 36 months (3 years) 60 months (5 years) What are the monthly payments? How much interest is paid? What is the total purchasing cost?

42. Loan To Own 42 Example #5 – 3 Years $7,500 - $2,500 = $5,000 (Negotiated price – Down payment = Principal loan amount) $5,000 over 3 years at 8% APR Step 1: Estimate the interest paid Principal loan amount: $5,000 Time period: 36 months (3 years) APR: 8% $5,000 *.08 * 3 = $1,200 estimated interest paid (Principal loan amount * APR * Time period = Interest Paid) Step 2: Find the total loan amount $1,200 + $5,000 = $6,200 (Interest paid + Principal loan amount = total loan amount) Step 3: Find the estimated monthly payment $6,200 / 36 = $172 (Total loan amount / Number of payments = Estimated monthly payment)

43. Loan To Own 43 Example #6 – 5 Years $7,500 - $2,500 = $5,000 (Negotiated price – Down payment = Principal loan amount) $5,000 over 5 years at 8% APR Step 1: Estimate the interest paid Principal loan amount: $5,000 Time period: 60 months (5 years) APR: 8% $5,000 *.08 * 5 = $2,000 estimated interest paid (Principal loan amount * APR * Time period = Interest Paid) Step 2: Find the total loan amount $2,000 + $5,000 = $7,000 (Interest paid + Principal loan amount = total loan amount) Step 3: Find the estimated monthly payment $7,000 / 60 = $116 (Total loan amount / Number of payments = Estimated monthly payment)

44. Loan To Own 44 Time Periods Example #5 - 3 years Monthly payment - $172 Interest paid - $1,200 Total purchasing cost = $8,700 Example #6 - 5 years Monthly payment - $116 Interest paid - $2,500 Total purchasing cost - $9,500 Price Difference - $800 The longer the time period of the loan, the smaller the payments. However, more interest is paid.

45. Loan To Own 45 Beware of “Bait and Switch” Tactics It’s not unusual for dealerships to use “bait and switch” tactics to get consumers in the door, only to find that what they thought was true, isn’t. Bait-and-switch is a form of fraud used in retail sales but also employed in other contexts. First, customers are "baited" by merchants' advertising products or services at a low price, but when customers visit the store, they discover that the advertised goods are not available, or the customers are pressured by sales people to consider similar, but higher priced items ("switching"). Things to watch for: 0% Financing Manufacturer Rebate Outstanding prices If it sounds too good to be true, it most likely is… $2,500 VIN# 21465758741263

46. Loan To Own 46 Equity The value of the car minus the debt Purchase Price of Car $25,000 - Amount Owed - 18,000 Equity $ 7,000 Purchase Price of Car $25,000 - Amount Owed - 18,000 Equity $ 7,000

47. Loan To Own 47 How Home Loans Work Mortgage is a loan secured by real property Buyer obtains financing (loan) to purchase from lending institution such as bank, mortgage company or federal government Ginnie Mae (Government National Mortgage Association) Fannie Mae: Provides money for home purchase Freddie Mac

48. Loan To Own 48 How Home Loans Work Down-Payment Usually 20% of appraised value If not enough down payment may have to take out Mortgage Insurance Closing Costs Payment to lender for costs incurred in the origination of a new home loan Prepaid Expenses (Savings Account) Property Taxes Home Insurance

49. Loan To Own 49 Borrowing Against Your Home What are the advantages of taking out a home equity loan? Lower interest rates Tax-deductible interest What is the danger of borrowing against your home? Losing your home Owing more than your home is worth

50. Loan To Own 50 Right to Rescind/Right to Cancel You have 3 days to reconsider a signed home equity loan agreement and cancel the loan without a penalty when you use your primary home as collateral.

51. Loan To Own 51 Is a Line of Credit Right for You? Can you afford the increased monthly payments after the introductory period ends or when interest rates rise? Are you comfortable with fluctuating monthly mortgage payments? Will you be investing your home equity in another asset of long-term value?

52. Loan To Own 52 Refund Anticipation Loans Short-term loans secured by your income tax refund (H & R Block) Example: Refund: $1,500 Fees: - $300 Check to you: $1,200

53. Loan To Own 53 Borrow From Yourself First Establish an emergency savings account Save at least 6 months of living expenses Consider making small, simple changes in your habits or banking practices to save

54. Loan To Own 54 Activity 2: Beware of Dealer-Lender Relationships Activity 3: Purchasing an Automobile

55. Loan To Own 55 Activity 3: Purchasing an Auto