Bank loans

BANK LOANS

CONSUMER LOANS

Define major terms associated with consumer lending

Explain the difference between installment loans and open-end loans

GOALS

INSTALLMENT LOANS

• Personal loans
• Automobile loans
• Home equity loans
• Education loans

SECURED AND UNSECURED LOANS

• A secured loan is one in which some item of value backs the loan in case the borrower defaults on the loan.
• The item that secures the loan is called collateral.
• A lien is a legal claim to property to secure a debt.
• An unsecured loan is a loan backed only by the reputation and creditworthiness of the borrower.
• Unsecured loans are sometimes called signature loans.

LENDING TERMINOLOGY

• Principal is the amount borrowed.
• Interest is the amount you pay to use the principal.
• Fees are other charges for the loan.
• The finance charge is the total dollar amount to be paid for the loan.
• Total payments is the total amount a consumer must repay.
• Payment is the amount the borrower repays each specified period.

OPEN-END LOANS

• Credit cards
• Lines of credit

Lesson 6.2 GRANTING AND ANALYZING CREDIT

List steps in the credit-approval process

Identify major criteria in a person’s credit rating

GOALS

RISK MANAGEMENT

• Risk management for bankers is the practice of minimizing financial loss through effective policies.
• Banks face risks in operations, credit, liquidity, legal and regulatory compliance, and even marketing matters.
• Risk management policies include consideration of the bank’s overall financial position, reserve requirements, cash flow, and ratio analyses of liabilities and assets.

CREDIT-APPROVAL PROCESS

• Application
• Documentation
• Processing
• Underwriting
• Collateral
• Capacity
• Credit reputation
• Closing
• Funding