Types of Loans and Procedures for Borrowing Money Unit C Basic Business Law Objective 6.02

2 Types of Loans Secured Loan Creditors obtain an interest in something of value 1.Collateral – Property that is the subject of the loan 2.Cosigner – Helps protect a loan when a borrower’s credit rating is poor 3.Secured Party – Lender or seller who holds secured interest 4.Repossession – Property is returned because of non-payment

3 Unsecured Creditors obtain no collateral for loan 1.No Collateral 2.Creditors make sure that debtor is reliable and able to pay back loan 3.Example (Credit Cards) Types of Loans

4 Single Payment Loan Debtor pays off loan in one payment 1. Promissory Note - Written promise to repay with interest 2. Installment Loan - Paid in regular payments Types of Loans

5 Truth in Lending Act Regulation Z 1.Actual cost of finance charge must be known 2.Annual percentage rate 3.Liable for $50 unauthorized credit card purchases made prior to notification Types of Loan Regulations

6 Equal Credit Opportunity Act 1.Applying for credit 2.Granted only on the ability to repay 3.Evaluation of application 4.Cannot discriminate based on gender, age, ethnicity, or religion 5.Acceptance and rejection  Based on income, current debts, or poor credit record Types of Loan Regulations

7 Procedures for Borrowing Money  Loan Application Consideration –Reputation for paying bills –Source of regular income –Competency –Number of dependants –Use of loan and for how long

8 Procedures for Borrowing Money  Rules Cannot ask sex, race, national origin, or religion Cannot refuse on basis of sex or marital status Marital status may/may not be asked Do not have to disclose income from alimony or child support unless relying on income May not be prohibited from using given names (birth)

9 Procedures for Borrowing Money  Interview Reference and credit check –Request for credit –Inaccuracy of credit report  Acceptance/Rejection Must inform client within 30 days If denied, must provide, upon request, reasons for denial within 60 days Cannot close account due to change in marital status, unless person unwilling/unable to pay