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Smart Borrowing-Small

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5 views

Smart Borrowing-Small

Uploaded by

w0dtr3n4meph3l
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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smart

BORROWING
F E D E R A L LY I N S U R E D B Y N C U A
Borrowing Glossary
A N N U A L P E R C E N TA G E R AT E ( A P R )

Annual Percentage Rate (APR) is the interest rate for the whole year that’s applied to a loan. Simply
put, the APR is how much it will cost you to borrow money. When comparing loan programs, it’s
important to consider the APR to determine the cost for the total term of a loan!

CREDITWORTHINESS

Creditworthiness is determined by your financial choices such as payment history, negative


accounts, and how much of your credit you’re actually using. The better your credit, the lower
interest rate you’ll be approved for, resulting in lower monthly payments!

QUICK TIP: Visit skylacu.com/learn to learn more about the importance of credit
and what factors go into your score.

F I X E D - R AT E L O A N S

A fixed-rate is an interest rate that does not change over the term of the loan. Your standard
mortgage or auto loan fall into this category, since the rate is locked in when you sign the dotted
line. (An Adjustable Rate Mortgage (ARM) does not fall into this category.)

T E R M LOA N S

A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term
loans usually last between one and ten years, but may last as long as 30 years in some cases.
Generally, you’ll have options for how long your term will last.

VA R I A B L E R AT E

A variable-rate is an interest rate that moves up and down over time because it is based on a
benchmark index that changes periodically. Basically, your rate can change over the period of time
you have the loan. A credit card is a good example of a product with a variable-rate.

1 | S M A RT B O R RO W I N G
Loan Types
AU TO LOA N

APR Type: Fixed-Rate Loan - Your rate will stay the same the life of the loan.
Loan Term Offered: A 48-month term is the most popular, but 60- and 72-month terms are also
offered.

CREDIT CARD

APR Type: Variable-Rate Loan – Your rate will change based on the market.
Loan Term Offered: Credit Cards do not have terms so you can keep this line of credit open for as
long as you need it if you continue to use it responsibly.

HOME EQUITY LINE OF CREDIT

APR Type: Variable-Rate Loan – Your rate will change based on the market.
Loan Term Offered: Typically, terms are up to 15-years, and you’ll only make payments for what you
use during the life of the loan.

H O M E LOA N

APR Type: Both Variable-Rate and Fixed-Rate loans are available depending on the type mortgage
you choose.
Loan Term Offered: Standard mortgages are offered at 15- or 30-year terms.

P E R S O N A L LOA N

APR Type: Variable-rate Loans. Your rate will change based on the market.
Loan Term Offered: Personal loans can range between 0 – 60-month terms.

S T U D E N T LOA N

APR Type: Both Variable-Rate and Fixed-Rate loans are available depending on the loan program
you choose.
Loan Term Offered: The average student loan term is 10 year; however, it varies based on lender.

2 | S M A RT B O RRO W I N G
Understanding Debt
Student loans, car payments, mortgages, and credit cards are all forms of debt you may carry.
Understanding the types of debt you have will help you determine the best course of action in making your
financial plan.

TYPES OF DEBT

Secured Debt: This debt ultimately gives you value and acts as an investment. For example, as you
pay down an auto loan or mortgage, you’re paying off the debt to ownership, which can be added to
your net worth.

Unsecured Debt: This debt does not contribute to your financial wellbeing, such as a credit card or
student loan. You should always make these debts your #1 priority to pay off since they do not add
any value for you.

T Y P E S O F PAY M E N T S T R AT E G I E S

Snowball Method: Make the minimum monthly payment on all debts and contribute as much extra
income as you can to the smallest debt first. Once you pay off the smallest debt, you take the total
you were contributing and put it towards the next smallest.

Avalanche Method: Put the extra payments towards the debt with the highest interest rate. Once
you pay off the highest, you move to the next highest. You’ll continue this pattern until you have paid
off all debt.

QUICK TIP: Want to hang onto your credit card without going back into debt?
Freeze the card(s) so you’ll still have that line of credit available for emergencies or
big expenses without the temptation and ease to use it.

3 | S M A RT B O R RO W I N G

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