Quiz 7: Using Consumer Loans


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Consumer loan can be borrowed for purchasing new vehicles like car, truck, van and other vehicles. Auto loans are secured against the vehicle purchased using the borrowed amount. • Durable goods loan: Consumer loan can be borrowed for purchasing durable goods like TV, fridge, washing machine, furniture, computers and other durable goods. These loans are secured by the goods purchased. While borrowing this loan down payment as to be made and the maturity of this loan depends upon the type of goods purchased using the loan amount. • Education loans: One of the important reasons for getting the consumer loans is to pursue higher studies. Loan amount can be used to finance their under graduation and post graduation. Education loan is available to parents and students. • Personal loans: Personal loans are borrowed for meeting personal expenses like, to meet out the current cash deficit, foreign trips and other personal expenses. Personal loans are not secured against any assets they are given for the borrower's goodwill. • Consolidation loan: Consolidation loans are obtained to correct the current bad credit situation. The worse credit situation is corrected by borrowing loans from one place for paying the loans in another place. Consolidation loans are very costly.

img From the table above, we can observe that Person AT should accept the discount loan from NCS Bank. This is because it has a lower APR and she will receive more in actual loan proceeds. 5. Person AT may have other options regarding disposition of the loan proceeds: • Person AT should consider arranging the loan as a line of credit. This way, she can borrow the money only as she needs it. Interest would only be charged on the funds that are disbursed , not the total amount of the credit line. Person AT would end up saving a significant amount of interest expense. • Person AT may also want to consider investing the loan proceeds into a highly liquid savings account or money market mutual fund. This way, she could still draw down the money as needed to pay for her schooling, but the unused portion would be earning her interest in the meantime.