Borrowing Basics
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Introduction
• Instructor and student introductions
• Module overview
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Student Introductions
• Your name
• Expectations, questions, and concerns
about borrowing money
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Purpose
Borrowing Basics:
• Describes how credit works and the types
of credit available.
• Helps you determine if you are ready to
apply for credit.
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Objectives
By the end of this course, you will be able to:
• Define credit.
• Explain why credit is important.
• Distinguish between secured and
unsecured loans.
• Identify three types of loans.
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Objectives (Continued)
• Identify the costs associated with getting a
loan.
• Explain why it is important to be wary of
rent-to-own, pay-day loan, and refund
anticipation services.
• Determine if you are ready to apply for
credit.
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Agenda and Ground Rules
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60 – 90 minutes long
One 10-minute break
Training methods
Class participation
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Credit
• Credit is money you borrow to pay for
things.
• It is also called a loan.
• “Good” credit means making payments on
time.
• “Bad” credit means it will be harder to
borrow in the future.
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Why Credit Is Important
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It can be useful in emergencies.
It’s more convenient than carrying cash.
It lets you make large purchases.
It can affect your ability to get
employment, housing, and insurance.
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Collateral
Property or another asset you promise to
give to the bank if you can’t repay your loan.
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Collateral Items
Car
Property
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Types of Loans
• Consumer installment loans
• Credit cards
• Home loans
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Consumer Installment Loan
A loan used to pay for personal expenses:
• Automobile
• Computer
• Furniture
• College tuition
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Credit Cards
Give you the ongoing ability to borrow
money for:
• Household,
• Family, and
• Personal needs.
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Home Loans
• Home purchase loans
• Home refinance loans
• Home equity loans
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Practice Exercise – Types of Loans
Instructions:
• Read the description of the purchase to be
made.
• Fill in the blank with the name of the most
appropriate loan type for that purchase.
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The Cost of Credit
• Fees
• Interest
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Fees
• Annual maintenance fees
• Service charges
• Late fees
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Interest
The money financial institutions charge for
letting you use their money.
The rate of interest is either:
• Fixed
• Variable
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How Much Does Credit REALLY
Cost?
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Amount financed
APR
Finance charge
Total paid
$5,000.00
12%
$600.00
$5,600.00
Watch out for “penalty APRs” and “universal
default” on credit cards.
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Practice Exercise – Borrowing
Money Responsibly
Instructions:
• Read each question carefully.
• Answer the question.
• Be ready to support your answer.
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The True Cost of Alternative
Financial Services
• Rent-to-own services
• Pay-day loan services
• Refund anticipation services
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Rent-to-Own Services
• You use the item by making monthly or
weekly payments.
• The store owns the item until you make
your final payment.
• Using rent-to-own services is more
expensive than getting a consumer
installment loan.
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Pay-Day Loans
Loans that:
• Are made for a fee to people who need
money right away.
• Are paid back with the borrower’s next
paycheck.
• Are renewed for an additional fee if not
paid off in the agreed-on time period.
• Should be used only for emergencies.
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Refund Anticipation Loans
• These short-term loans are secured by
your income tax refund.
• The money for the loans comes from a
bank or finance company.
• They are more costly than you might think.
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The “Four Cs” of Credit
Decision Making
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Capacity
Capital
Character
Collateral
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