Personal Finance presentation, loan types and institutions, consumer finance companies prepare to get financially fit by practicing personal finance, we will first take a step back listing out where we might go, if we’re looking for financing looking for a personal loan, and then we’ll focus in on the consumer financing companies. So if we were looking for a loan, the first thing that would come into mind most likely would be the commercial banks.
And we looked at those in a prior presentation, we’re focusing in this time on the consumer finance companies, we’ll take a look at in future presentations, credit unions, life insurance companies, Federal Savings, banks, savings and loan associations. So we’re focusing in on the consumer finance companies, they are a non bank lender. Typically, this is a general definition a non bank lender, a consumer finance company does not receive deposits, but does make loans to customers for business or personal use.
It derives its profits from the interest on these loans. It is also called simply a finance company. So when we’re thinking about a consumer finance company, or finance company, what are their general lending policies, and usually, when you’re thinking about some institution, other than, say, a bank, you’re probably comparing and contrasting when you’re looking at personal loans, the policies that you might find at a bank to policies you might find at some other institutions, such as a consumer finance company, so they often lend to consumers without established credit history.
So remember, when you’re comparing that to a bank, a bank might have credit cards, and so on, and so forth. But when you’re looking at other types of loans, you’re looking at installment loans. Typically, a bank is looking at the larger type of loans, possibly for a home purchase, or car purchase. And when doing so they kind of spend the time usually to look at the credit history, and they’re looking for people that have the established credit history at the bank generally, so often make unsecured loans.
So when you’re looking at larger type of loans, then on a bank side of things, they’re looking for those larger types of loans, oftentimes, for a home loan, or a car loan, where possibly they can look for the thing that is being purchased as collateral on the loan. So here we’re looking at loans that might be more unsecured loans often vary rates according to the size of the loan balance.
So note that when you’re thinking about the rates that would be applied here, just given the fact that you have more risk that would be involved with some of the factors we’ve mentioned already, which would be the lower credit history, the less established credit history, and the fact that the loan would be unsecured, would result possibly in taking on more risk by the institution by the consumer finance company, which could result in the higher loan. So clearly, the home higher loan rates. So clearly, the institution is going to have to be balancing the rates that they’re going to be charging and the risk of the loan offer a variety of repayment schedules.
So note, when anytime you’re kind of moving away from a standard type of installment situation, that you might see just normal installment agreements or arrangements, even with a normal installment arrangement, it can be a little bit confusing. When you’re moving away from a traditional kind of arrangement, then, of course, you got to be more vigilant in terms of how you’re going to be comparing and contrasting different options, because it can be a little bit confusing to do.
So we’ll talk more about how it might be how we might do that, in the practice problems make a higher percentage of small loans than other lenders. So remember that the banks, although they deal with credit cards, and whatnot, usually when they’re looking at standard loans, like installment loans, they’re looking for those larger lenders that have good credit history. And they’re looking for larger loans typically. So here, we might make a larger percentage of the small loans, maximum loan size limit, by law, process applications quickly, often on the same day, the application is made.
So in contrast with, say, a bank, when you’re looking at the larger types of loans on the bank, which are generally installment loans, the bank is going to be taking the more time generally to be looking at the credit history, and so on and so forth, possibly looking at collateral and so on, and so forth. That could take more time, if you eliminate some of those items. And then of course, it could be the case where you can get the money possibly faster to process it faster with a consumer finance company, depending on the type of loan you’re looking for.
So the consumer finance company loan types, what types of loans would they offer, you got the personal installment loans, generally type of loan and the primary mortgages and the second mortgages. Now we looked at these types on the banking side of things, so we won’t go into them in as much detail, but we’ll take a quick look at those types as well. Notice we have less types of loans here generally, then then the bank but you can look at the different ways those loans could be applied, as we saw on the prior presentation. So just a quick look at these types of loans.
We have the personal installment loan, that generally is going to be the type of loan We would think of for a larger type of loan, the traditional kind of setup being that you’re going to be paying back the loan in installments. Oftentimes those being fixed payments. Oftentimes on a monthly type of basis, we have the primary mortgages. mortgages are loans that are used to buy homes and other real estate, the property will be the collateral for the loan mortgages are available in a different types, including fixed rate and adjustable rate loans.
The cost of a mortgage will depend on the type of loan, the loan term and the interest rate charged. mortgage rates can vary widely depending on the type of product and the qualifications of the applicant. And then of course, we have the second mortgages, which is a loan made in addition to the homeowners primary mortgage, homeowners might use a second mortgage to finance large purchases, although you got to make sure that you’re taking into consideration tax implications and what not what you’re using the money for.
Second mortgages often have higher interest rates than first mortgages, but it can it can balance out so obviously, they’re taking on more risk on the rates, but they might be lower than other types of loans. It can be expensive, however, to take the second mortgage because of course, you do have to use the processing of the mortgage take on those costs in order to get the benefits of this possible lower rates on the second mortgage, as opposed to other types of financing.