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Financial Literacy Club

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Credit & Debt · Lesson 5

Types of Loans

Part A. Vocabulary

Define each term in your own words.

Principal and term

Secured vs. unsecured

Part B. Guided notes

Fill in each blank using the word bank.

Word bank: collateral · fully · interest · monthly · payments

  1. Installment loans: fixed amount, fixed , set end date.
  2. Secured loans have that can be taken if you don't pay.
  3. Longer term = smaller payment, more total .
  4. Shop by APR and total cost, not payment.
  5. Co-signers are on the hook.

Part C. Check your understanding

Circle the best answer.

  1. Two car loans have the same amount and the same APR. One lasts 3 years, the other 6.

    1. Which costs more in total interest?

    • A. The 3-year loan, because the payments are bigger
    • B. The 6-year loan, even though each payment is smaller
    • C. They cost the same
    • D. It depends on the car's color

  2. 2. If you co-sign a friend's loan, you only have to pay if the lender can't find your friend.

    True/False

  3. If you stop making payments, the lender can take back the car.

    3. What kind of loan is this?

    • A. A revolving loan
    • B. An unsecured loan
    • C. A secured loan
    • D. A grant

Part D. Apply it

Show your work.

  1. 1. A $10,000 loan at 6% APR: compare the monthly payment and total interest for a 3-year and a 5-year term.

  2. 2. What is collateral? Give an example of a secured loan.

Part E. Think about it

Answer in complete sentences.

  1. 1. Why might someone choose a longer loan even though it costs more?

  2. 2. Would you co-sign for a close friend? What would you want to know first?

Exit ticket

Name

Why should you shop for a loan by APR and total cost instead of monthly payment?