Loans

Home, Car & Student Financing

Loans from a financial institution are different from the kind of loan you might get from a friend or parent. First of all, most loans have timelines for when you must pay them back and minimum amounts you must pay each month. They also include interest and other fees that you will have to pay as the cost of borrowing money.

It is unlawful for a bank or other creditor to discriminate against any applicant on the basis of race, sex, or marital status. Lenders can only make distinctions based on credit ratings.

Principal v. Interest

The principal is the amount of the loan itself and interest is the amount you pay to your lender in order to have the loan. Loans
are amortized over time, which means reduced by making regular payments. For example, if you get a car loan, each month your payment has a portion that covers the interest you owe and a portion that pays down your principal. The majority of each payment at the beginning of loan period pays for the interest. As time goes on, more and more of each payment covers your principal.

Collateral & Co-Signers

Collateral is an item of value that is accepted by the lender as protection against missed payments. For example, if you buy a car and agree to installment payments, the car itself becomes the collateral. The lender could repossess the car if you fail to make your payments. However, collateral is never looked at to be your primary repayment source for the loan, it’s really a last resort if you have not maintained the terms of your loan.

Some lenders may also require you to have a co-signer in order to give you a loan. A co-signer is someone, like a parent, who is guaranteeing that they will pay the loan if you do not. If you have a co-signer on a loan or an apartment lease, it is important to remember the co-signer is as legally connected to the agreement as you are.

Types of Loans

  • Consumer Loans: Loans taken out by an individual, usually for a large purchase like a car.
  • Student Loans: Loans that are designed to help students pay for college tuition, books, and living expenses. There are two types
    of student loans and the difference is very important if you are looking to take out loans for school. While there is more variations to these, the basics are as follows:
    1. Subsidized loans – Loans which don’t accrue interest until after you graduate.
    2. Unsubsidized loans – Loans which gather interest while you are attending college.
  • Payday Loans: Loans that are meant to be small, short-term loans offered at a very high interest rate. Idaho has had one of the highest payday loan interest rates in the country at an annual percentage rate of 521%. Idaho passed the Payday Loan Act to limit payday loans to no more than 25% of the borrower’s gross monthly income or $1,000, whichever is lower. Payday lenders must provide an extended payment plan for borrowers who are having difficulty paying off their loans to pay off the loan over 60 days with no additional fees.
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