7 - 1 copyright © 2008 by nelson, a division of thomson canada ltd chapter 7 – using consumer...
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COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd
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Chapter 7 – Using Consumer Loans
Chapter 7 – Using Consumer Loans
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Chapter 7 - Learning Goals
LG 1 - Know when to use consumer loans and be able to differentiate between the major types.
LG 2 - Identify the various sources of consumer loans.
LG 3 - Choose the best loans by comparing finance charges, maturity, collateral, and other loan terms.
LG 4 - Evaluate the benefits of a demand loan.LG 5 - Evaluate the benefits of an installment loan.LG 6 - Determine the costs of installment loans and
analyze whether it is better to pay cash or take out a loan.
Learning Goals
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Internet Links and On-Line Resources
• Auto Loans: Negotiations Salted with Landmines – Bankrate.com• Advice on financing a university education at CanLearn Web site.• Products and services offered to consumers from HSBC Finance
Corporation Canada.• Information on payday loans in Canada.• Compare the cost of different financing options at Government of
Canada Industry Canada website – strategis.• Lending Tree lets you compare loan rates and fees from up to four
lenders instantly.
Web Links
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Key Chapter Terms and Definitions Consumer loans Collateral Registered Education S
avings Plan (RESP) Demand loan Interim financing Installment loan Consumer finance com
pany Sales finance company Captive finance compan
y Cash value (of life insur
ance) Loan application Security interest
Chattel mortgage Prepayment penalty Loan rollover Add-on method Credit life (or disability)
insurance
Terms
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DefinitionsConsumer loans
Loans made for specific purposes using formally negotiated contracts that specify the borrowing terms and repayment.
Terms
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DefinitionsCollateral
An item of value used to secure the principal portion of a loan.
Terms
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DefinitionsRegistered Education Savings Plan (RESP)
A government-sponsored investment vehicle that allows earnings to grow tax free as long as they are used to meet university education expenses.
Terms
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DefinitionsDemand loan
A loan made for a specified period of time, which the bank can require to be repaid at any time.
Terms
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DefinitionsInterim financing
The use of a demand loan to finance a purchase or pay bills in situations where they funds to be used for repayment are known to be forthcoming in the near future.
Terms
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DefinitionsInstallment loan
A loan that is repaid in a series of fixed, scheduled payments rather than a lump sum.
Terms
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DefinitionsConsumer finance company
A firm that makes secured and unsecured personal loans to qualified individuals; also called a small loan company.
Terms
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DefinitionsSales finance company
A firm that purchases notes drawn up by sellers of certain types of merchandise; typically big-ticket items.
Terms
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DefinitionsCaptive finance company
A sales finance company that is owned by a manufacturer of big-ticket merchandise. For example, GMAC is a captive finance company owned by General Motors.
Terms
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DefinitionsCash value (of life insurance)
• An accumulation of savings in an insurance policy that can be used as a source of loan collateral.
Terms
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DefinitionsLoan application
• An application that provides a lender with information about the purpose of the loan, and the applicant’s financial condition.
Terms
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DefinitionsSecurity interest
• A legal claim that permits the lender, in event the borrower defaults, to liquidate the items serving as collateral to satisfy the obligation.
Terms
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DefinitionsChattel mortgage
• A mortgage on personal property given as security for the payment of an obligation.
Terms
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DefinitionsPrepayment penalty
• An additional charge you may owe if you decide to pay off your loan prior to maturity.
Terms
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DefinitionsLoan rollover
• The process of paying off a loan by taking out another loan.
Terms
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DefinitionsAdd-on method
• A method of calculating interest by computing finance charges on the original loan balance and then adding the interest to that balance.
Terms
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DefinitionsCredit life (or disability) insurance
• A type of life (or disability) insurance in which the coverage decreases at the same rate as the loan balance.
Terms
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THE END!