Loan Types Explained

1. Amortized Loans (Fixed Periodic Payments)

• Definition: Loans with regular, equal payments covering principal + interest until paid off.
• Examples: Mortgages, auto loans, student loans, personal loans.
• Key Features:
  • Payments evenly spread over the loan term.
  • Interest decreases over time; principal repayment increases.
• Calculators: Mortgage, Auto Loan, Student Loan.

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2. Deferred Payment Loans (Single Lump Sum at Maturity)

• Definition: Loans requiring one full payment (principal + interest) at the end of the term.
• Examples: Short-term commercial loans, balloon loans (with minimal interim payments).
• Key Features:
  • No periodic payments; ideal for businesses needing upfront capital.
  • Higher risk due to large final payment.

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3. Bonds (Predetermined Maturity Payment)

• Definition: Debt securities where issuers repay face value at maturity.
• Types:
  • Coupon Bonds: Pay periodic interest (e.g., annually).
  • Zero-Coupon Bonds: Sold at discount; no interim payments.
• Key Features:
  • Value fluctuates with market rates during lifespan.
  • Common in corporate/government financing.
• Calculator: Bond Calculator (for zero-coupon bonds).

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Loan Basics

Interest Rates

• APR (Annual Percentage Rate): Total borrowing cost (interest + fees).
• APY (Annual Percentage Yield): Includes compound interest, used for savings.
• Key Tip: Use the Interest Calculator to compare rates.

Compounding Frequency

• Impact: More frequent compounding = higher total interest.
• Example: Monthly compounding (common in loans) vs. annual.
• Tool: Compound Interest Calculator.

Loan Term

• Short-Term: Higher monthly payments, lower total interest.
• Long-Term: Lower monthly payments, higher total interest.

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Secured vs. Unsecured Loans

Feature	Secured Loans	Unsecured Loans
Collateral	Required (e.g., home, car).	Not required.
Interest Rates	Lower (less risk for lender).	Higher (higher risk).
Approval	Easier with collateral.	Requires strong creditworthiness.
Examples	Mortgages, auto loans.	Credit cards, personal loans, student loans.

5 C’s of Credit (Unsecured Loans)

Lenders assess borrowers using:

1. Character: Credit history, income stability.
2. Capacity: Debt-to-income ratio.
3. Capital: Savings, investments, down payments.
4. Collateral: Not applicable (secured loans only).
5. Conditions: Loan purpose, economic climate.

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Key Takeaways

• Amortized Loans are ideal for predictable budgeting.
• Deferred Loans suit businesses with future revenue streams.
• Bonds offer fixed returns but carry market risks.
• Secured Loans offer better terms but risk asset loss.
• Unsecured Loans require strong credit but no collateral.

Tools: Explore APR Calculator or Debt-to-Income Calculator for personalized insights.

Final Note: Always review loan terms, compare rates, and consider consulting a financial advisor to align borrowing with your goals.