DR. FILEMON C.

AGUILAR MEMORIAL COLLEGE

College of Business Administration
Golden Gate Subdivision, Talon 3, Las Piñas City

Course code and Title : FINE 2 / PERSONAL FINANCE

LESSON NUMBER : Module 10

Topic : Consumer Loans

Introduction:
A consumer loan is a type of loan in which you take on a personal debt to pay
for goods or services. In the Philippines, common types of consumer loans that are
offered by banks are auto loans, motorcycle loans, and home loans.

Consumer loan are provided to people for such critical circumstances which may
occur at anytime. You need cash but you don’t want to borrow from your relatives .
For emergency, when you need a huge amount of money and this will also help you for
your personal needs. It is a loan given to consumer to finance specific types of
expenditures. In other words, a consumer loan is any type of loan made to consumer
by a creditor .

Learning Objectives :

After this lesson, the student should be able to :

1. Identify the various sources of consumer loans

2. Valuing the concept of consumer loans.

3. Discuss the categories of consumer loans.

Pre-Assessment:

Instruction: Write your answer in ½ sheet of paper or in a document file.

1. Give 5 Types of consumer loan and define in 1 sentence or more.

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Lesson Presentation:

Consumer loan is a loan given to consumers to finance specific types of

expenditures. In other words, a consumer loan is any type of loan made to consumer
by a creditor. The loan can be secured (backed by the assets of the borrower) or
unsecured (not backed by the assets of the borrower).

With a consumer loan , you receive the money the lender has approved from
you in one lump sum. This is called the principal, then, to pay the lender back, you
need to make equal monthly payments called installments for a fixed period of time
until the loan is paid off.

What are Consumer Loans used for ?

Consumer loans are used to finance expensive purchases. Without consumer

loans, many people would be unable to purchase a home or car. Students can pay for
college and not have to repay the loan until they have completed school. Credit cards
are convenient and are a great way to help build credit.

Types of Consumer Loans

1. Home Mortgage - A mortgage is a loan used to purchase a home. Borrowers

typically put a small percentage of the purchase price down in cash, and the remaining
balance is financed through a bank or lending institution .

2. Personal Loan - Personal loans are unsecured loans given to consumers with short
loan terms, usually between 18-60 months. Interest rates on personal loans are usually
higher than secured loans like home equity loans but lower than credit cards.

3. Refinance Loan - When you get a new loan to pay off an existing loan is known as
refinancing. You can refinance most types of loans, but mortgage refinancing is the
most common. There are many reasons one would want to refinance their loan. Usually,
it is to get a lower interest rate or monthly payment.

4. Auto Loan - A vehicle is often the second-largest purchase most consumers make.
It is just not possible for most to pay cash for a depreciating asset like a car. So many
people use an auto loan to purchase and finance a car.

5. Credit Card - Interest rates for credit cards are typically quite high, but you are only
charged interest on the amount you borrow. If you’re able to pay off the full balance
each month, you will not pay any interest at all.

6. Student Loan - Student loan payments are usually deferred until you complete
college. Payments can be stretched out over several years, making the monthly
payments relatively small.
Categories of Loans

1. Open-end loan

An open-end consumer loan also known as revolving credit, it is a loan

that the borrower can use for any type of purchases but must pay back a minimum
amount of the loan, plus interest, before a specified date. Example is credit card.

2. Closed-end loan

Closed-end loan is also known as installment credit, it is used to finance

specific purchases. The consumer makes equal monthly payments over a period of
time.

Sources of Consumer Loans

Consumers loans can be obtained from a number of sources, including

commercial banks, consumer finance companies, credit unions, sales finance
companies, and life insurance companies even pawnshops, or friends and relatives.

a. Commercial Banks

- offer various types of loans at attractive rates of interest, commercial banks are
a popular source of consumer loans. One nice thing about commercial banks is that
they typically charge lower rates than most other lenders, largely because they take
only the best credit risks and are able to obtain relatively inexpensive funds from their
depositors.

b. Credit Unions

- Credit unions are the deposit-type institution that serves members who have a
common bond, such as working for the same employer. Offer some of the best credit terms
available to their members.

- Credit unions can offer favorable loan terms for three reasons:
 First, as a deposit -type financial institution, the credit union has deposits
on hand from which loans can be made.
 Second, many credit unions are nonprofit, cooperative entities.
 Finally, credit unions are characterized by low expenses

c. Savings and Loan Associations (S & L’s)

- lend to credit worthy people, and usually collateral may be required. The
loan rates vary depending on the amount borrowed, the payment period and the
collateral. The interest charges are generally lower than those of some other types of
lenders because S & L’s lend depositors money.
d. Pawnbrokers

- hold your property and lend you a portion of its value. If you repay the loan
and the interest on time, you get your property back. If you don’t, the pawnbroker sells
it, although an extension can be arranged.

e. Family and Friends

- your relatives can sometimes be your best source of credit. However, all such
transactions should be treated in a business, like manner. Misunderstandings may
develop that can ruin family ties and friendships.

Generalization:

With a consumer loan, you receive all the money the lender has approved
for you in one lump sum. This is called the principal. Then, to pay the lender
back, you need to make equal monthly payments, called installments, for a fixed period
of time, until the loan is paid off.

Because it’s cheaper to borrow money, consumers take more loans and
purchase more goods and services. For qualified borrowers, consumer loans serve a
multitude of purposes and are essential in helping them.

Application :

 Prepare and Develop Personal Finance plan.

Evaluation:

1. Give 5 reasons on how to convince a lender to approve for a

consumer loan.

Copy and answer. This can be handwritten or typewritten then upload your answer to
your Google Drive folder in word, pdf, or jpeg (picture) format

 Watch a youtube video about time value of money and create a reaction
paper about it.

Reinforcement:

Instruction: Write in 1 whole sheet of yellow paper then upload your reinforcement to
your Google drive folder in word, pdf, or jpeg (picture ) format

1. Continuation of personal cash flow statement record monitoring for week 11.

 Note: Upload using this file name format:

SURNAME_NAME_MO1_ EVAL
 SURNAME_NAME_MO1_ REIN

Example : MERCADO_GRACE_M01_EVAL

Always use the same format when uploading your files. M01 stands for
Module Number, EVAL is for Evaluation, and REIN is for Reinforcement. Failure to
follow, no credit

Online resource:
https://www.slideshare.net/priyasinha28/time-value-of-money-ppt-61447446

Personal Finance 2nd edition, Jeff Madura, 2017 Pearson Education

Investment Management with Personal Finance, 2014-2016 edition, Lawrence J. Gitman

https://thelendersnetwork.com/what-is-a-consumer-loan/