Chapter 7

Using Consumer Loans: The Role of Planned Borrowing

Types of Loans

Consumer Loan

Definition: a loan involving a formal contract detailing

exactly how much youre borrowing and when and how youre
going to pay it back.

Single-Payment Loan (Balloon Loan)

Definition: A loan that is paid back in a

payment at a maturity, or the due date of
is usually specified in loan contract. At
pay back the amount you borrowed plus all
charges.

single lump-sum
the loan, which
that date you
interest

Bridge or Interim Loan

Definition: a short-term loan that provides funding until

a longer-term source can be secured or until additional
financing is found.

Installment Loan

Definition: a loan that calls for repayment of both the

interest and the principal at regular intervals, with the
payment levels set in such a way that the loan expires at
a preset date.

Secured Loan

Definition: a loan thats guaranteed by a specific asset.

Unsecured Loan

Definition: a loan thats not guaranteed by a specific

asset.

Fixed Interest Rate Loan

Definition: a loan with an interest rate that stays fixed

for the entire duration of the loan.

Variable or Adjustable Interest rate loan

Definition: A loan in which the interest rate does not

stay fixed but varies based on market based on the market
increase rate.

Prime Rate

Definition: the interest rate banks charge to their most

creditworthy, or prime, customers.

Convertible Loan

Definition: a variable-rate loan that can be converted

into a fixed-rate loan at the borrowers option at
specified dates in the future.

Student Loan

Definition: a loan with low, federally subsidized

interest rate given to students based on financial need.

Automobile Loan

Definition: a loan made specifically for the purchase of

an automobile, which uses the automobile as collateral
against the loan.

Debt Consolidation Loan

Definition: a loan used to pay off all your current

debts.