| A loan is the redistribution of money between a lender | | | | payments. These agreements are not loans, so no |
| and a borrower. As a borrower, you receive an | | | | interest is charged. However, typically you pay 2 to 5 |
| amount of money from the lender, which you will have | | | | times more than the cost of the same item at a store. |
| to pay back later. This service is provided at a cost, | | | | For example an electronic store sells a TV for $1,500. |
| referred to as interest, or annual percentage rate | | | | A nearby rent-to-own store offers the same TV with |
| (APR). | | | | a payment plan of 52 payments of $55 every other |
| Installment loans are loans that are repaid in equal | | | | week. If you multiply 52 weeks x $55 payments, the |
| monthly payments within a specific period of time. | | | | total cost for the TV from the rent-to-own services is |
| Installment loans come at a cost. This includes the | | | | $2,860! If you miss a payment you can lose the item |
| APR (an interest rate) and the finance charge. Cars, | | | | and all the money that you have already paid towards |
| furniture, computers or household appliances can be | | | | owning it! |
| purchased with installment loans. Compare fixed-rate | | | | Payday loans are cash advances given in exchange |
| loans, where the interest rate stays the same | | | | for a written check from your bank account. Your |
| throughout the loan term, with variable-rate loans, | | | | check is held until your next payday and then cashed. |
| where the interest rate can change during the period | | | | These loans are costly with a typical payment of |
| of the loan. | | | | $15-$35 for every $100 you borrow. This might not |
| Secured loans imply that the borrower offers a | | | | seem like a lot of money but imagine that for a $200 |
| guarantee, or collateral, for the loan. The borrower has | | | | loan you agree to pay back $260 in 2 weeks. You |
| a claim on this collateral as a repayment source if a | | | | pay $60 in interest which is the equivalent of a 782% |
| loan is not paid pack in cash as agreed. For example, a | | | | annually! |
| home mortgage is a secured loan - the bank loans the | | | | TIP: Before you take out a loan compare fees and |
| majority of the purchase price of the home, but retains | | | | interest rates. Make sure you understand if the interest |
| a lien against the home for as long as the loan is | | | | rate can change over the life of the loan. Remember |
| outstanding. Unsecured loans are loans that are not | | | | there are alternatives to payday and rent-to-own |
| secured by collateral, such as credit cards. Because | | | | services. Your community organization, bank or credit |
| the lender holds no collateral, unsecured loans hold | | | | union may offer small, short-term loans at more |
| significantly more risk for the lender, which is usually | | | | reasonable rates. Paying for an expensive item in |
| reflected in a higher interest rate. | | | | three or four installments could save you money! Shop |
| Rent-to-Own Services allow you to rent an item for a | | | | around before you buy and never feel pressured to |
| period of time, in exchange for weekly or monthly | | | | make a purchase. |