For each TYPE OF CREDIT listed in the first column, you'll categorize it in the remaining three columns, using the following descriptions: 

 

Installment Loans	Revolving Credit
used to finance a specific purchase for a specific amount of time. Regular payments are made to pay the interest and the principal.	an open line of credit that can be used for any purchases as long as you're under the credit limit. Payment amounts vary each pay period based on the size of the debt.

 

Secured Debt	Unsecured Debt
debt is tied to a specific asset that can be used as collateral and repossessed if borrower doesn't make payments	debt is not tied to a specific asset; there is no collateral that can be repossessed if borrower defaults

 

Variable-Rate	Fixed-Rate
interest rate can change during the duration of the loan based on the prime rate or an index rate	the interest rate remains constant during the duration of the loan

 

If you're unsure where a type of credit belongs, you can use these links as a resource:

• Types of Consumer Credit & Loans -  https://www.debt.org/credit/loans/
• The Difference Between Secured and Unsecured Debts https://www.thebalance.com/the-difference-between-secured-and-unsecured-debts-960181
• What Is the Difference Between Fixed- and Variable-Rate Financing? - https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-fixed-and-variable-rate-auto-financing-en-757/

TYPE OF CREDIT	1. Installment Loans vs Revolving Credit I = installment  R = revolving  CBE = could be either	2. Secured vs Unsecured Debt S = secured  U = unsecured  CBE = could be either	3. Variable vs Fixed Rate V = variable F = fixed CBE = could be either
Auto loan
Credit card
Mortgage
Payday loan
Personal loan (from bank)
Small business loan (from bank)
Student loan (Federal)

 

Part II: Reflection

 

1. Why do people sometimes use credit to pay for items instead of just using cash?

 

1. When applying for credit, is it preferable to receive a low interest rate or a high interest rate?

 

1. Sometimes, lenders allow or require a downpayment before they extend you the loan. What would be the advantage to the lender? What would be the advantage to the borrower?

 

 

1. What questions do you have about these different Types of Credit?  Use the space below to note these questions and see if they are answered as you learn more throughout this unit.

 

 

 

 

 

 

 

Answer rating: 100% (QA)

Part I TYPE OF CREDIT 1 Installment Loans vs Revolving Credit I installment R revolving CBE could be either 2 Secured vs Unsecured Debt S secured U un... View the full answer