Topic 8: Consumer Loan, Credit Cards, Real Estate Lending Flashcards
is a loan given to consumers to finance specific types of expenditures. In other words, a consumer loan is any type of loan made to a consumer by a creditor
Consumer Loan
What are the common types of consumer loans that are offered by banks?
- Auto loans
- Motorcycle loans
- Home loans
is the process of providing financing to individuals or families on consumable items such as a car, house, or furniture
Consumer Lending
- are loans that are backed by collateral
- generally grant the borrower greater amounts of financing, a longer repayment period, and a lower charged interest rate
Secured Consumer Loans
- are loans that are not backed by collateral
- generally grant the borrower a limited amount of financing, a shorter repayment period, and a higher charged interest rate
- are supported by the borrower’s creditworthiness
Unsecured Consumer Loans
- Short-term to medium-term loans that are repayable in two or more consecutive payments
- borrowers must
repay with regularly scheduled payments or
installments
Installment Loans
Installment loans are used for
- automobiles
- recreational vehicles
- furniture and home appliances
- consolidate existing household debts
What is the advantage of Installment Loans?
includes flexible terms and lower interest rate
What is the disadvantage of Installment Loans?
includes the risk of default and loss of collateral
- refer to a system of credit that is payable in one lump-sum amount by a specified date
- are short-term loans are drawn upon by individuals and families for immediate cash needs
Non-Installment Loans
Non-installment Loans are used for
- cover the cost of medical care
- purchase of home appliances, and auto and home repairs
- single-payment loans by financial institutions
- service credit extended by utility companies
a loan that is provided by a mortgage lender or a bank, which enables an individual to purchase a home or property
Mortgages
a type of loan where the money you spend is borrowed from the card provider rather than taken from your bank account
Credit Cards
used by consumers to finance education
Student Loans
typically offer flexibility, but costs can vary based on your credit history and the lender you choose.
Personal Loans
a type of loan that gives you access to a set amount of money
Revolving Credit
- assigns the borrower a specific credit limit
- limit is based on the client’s credit score, income, and credit history
Revolving Credit
refers to an open-ended credit account—like a credit card or other
“line of credit”—that can be used and paid down repeatedly as long as the account remains open
Revolving Credit
- As soon as the debt is repaid, the user can borrow up to her credit limit again without going through another loan approval process
- If you have failed to pay your debt by the due date, you may be subjected to interest or any charges
Revolving Credit
What are the two types of Revolving Credit
Credit Cards and Home Equity Line of Credit
an open-ended credit account that lets you borrow money against the value of your home
Home Equity Line of Credit
- it works like a credit card but uses the home as collateral
- you canborrow and repay the money multiple times as long as you don’t exceed the credit limit
Home Equity Line of Credit
pay off the purchase price gradually incurring a monthly finance charge based on an annual interest rate
Installment
pay off the charge in one billing period escaping any finance charge
Non-Installment
standard credit cards that are used to charge purchases
Traditional Cards
- benefit consumers that purchase gasoline regularly
Gas Cards
- closed-loop or open-loop
- offer merchandise discounts
Retail Cards
to earn cash back or points for the purchases made
Rewards Cards
- higher than rewards card
- rewards to be earned are much more extravagant
Premium Rewards Cards
consolidate credit card debt
Balance Transfer Cards
- similar to balance transfer cards
- low-interest rates as a form of incentive
Low Interest Cards
- secured by assets to protect card issuers
- most often for those who have no credit history or did not qualify for a traditional credit card
Secured Cards
the one who applied to the bank
Principal Card Holder
an authorized user that has permission from the principal card holder
Supplementary Card Holder
a detailed document that summarizes all the transactions made by the card holder in a given period of time
Statement of Account
the date of purchase
Transaction Date
the date on which the transaction is received into the account
Post Date
According to Uniform Bank Performance Report (UBPR): these loans are domestic - office loans secured by real estate
Real Estate Loans
Classified separately from commercial and consumer loans because the collateral is in the form of real property and the loans are subject to different risks and regulations
Real Estate Loans
consisting of construction and real estate development, land development, and commercial properties loans
Short-Term Interim Loans
provide financing only for a limited time until permanent financing is arranged eg. long-term mortgage or direct financing from insurance companies or pension funds
Interim Loans
bank extends credit to a builder to pay for the materials and labor necessary to complete a project
Construction Loan
- irregular basis
- completion of certain phases of the construction process
- actual supplier and subcontractor bills presented to the banker
Repayment of Construction Loan
finance the construction of roads and public utilities in areas where developers plan to build houses
Land Development Loan
when homeowners buy the houses and lots
Repayment of Land Loan Development
written guarantee by a lender to provide permanent financing for a commercial property once an interim loan or construction loan comes due
Takeout Commitment
What are the two types of Residential Mortgage Loans or Home Loans?
Conventional and Flexible
What are the characteristics of Residential Mortgage Loans or Home Loans?
- long-term financing option
- can be utilized for the purchase of a vacant lot, a house and lot, a townhouse unit, an apartment, or a condominium unit
0 financing of the construction or renovation of a home
0 can also be used to refinance existing home loans or to reimburse acquisition costs
- legal document through which a borrower gives a lender a lien on real property as collateral against the debt
- borrower gets to use a property as long as the scheduled interest and principal payments are met. If the borrower defaults, the lender can exercise the lien and claim the property
Mortgage
allows borrowers to make fixed payments for a specified period of time. In the Philippines, this can commonly last for up to 20 years and for a minimum of Php500,000
Conventional Home Loan
connected to an existing banking account, with the account owner is able to affect the interest rate charged by way of depositing payments and/or beginning principal repayment at any time
Flexible Home Loan
What is the eligibility of age in loan?
minimum of 20 maximum of 65 years old
What is the eligibility of employment in loan?
employed for at least 2 years, self-employed and business owners: taxes, income, and/or profits, as well as business permits and other related documents, are required for approval
What is the eligibility of income in loan?
earning a specified amount each month to best ensure capacity to pay
What is the eligibility of citizenship in loan?
Filipino citizens are all eligible to borrow home loans from banks in the Philippines. Foreign applicants, or Filipinos who are no longer citizens of the country, would have to consider banks that lend to an international clientele
What is the risk interest rate?
because of longstanding of 30 years max potential loss if rates increase
To avoid the risk interest rate, what do banks provide?
- periodic adjustments in the interest rate
- adjustments in periodic principal payments
- the lender sharing in any price appreciation of the underlying asset at the sale
- most banks tend to offer a fixed interest rate in at least the first year, with the following years subject to re-pricing
