Loans 101 (Loan Basics 1/3)
MoneyCoach
3 min, 43 sec
The video provides an in-depth explanation of how loans function, including interest rates, APR, and loan terms.
Summary
- Lucy learns the basics of loans, interest, APR, and the importance of the loan term.
- Loans involve borrowing a principal amount with an obligation to pay back with interest.
- Interest rates can be fixed or variable, and the APR includes both interest rates and fees.
- Shorter loan terms result in higher monthly payments but ultimately save on interest over the loan's life.
- The video suggests using an online calculator to determine monthly payments and emphasizes the impact of credit scores on APRs.
Chapter 1
Lucy, a Corporate Co. employee, aspires to make big purchases but lacks confidence in managing loans.
- Lucy has observed her colleagues making significant purchases through loans.
- She wants to emulate them but feels uncertain about how to handle loans.
Chapter 2
The video describes loans as borrowed money that must be repaid with interest and possibly secured by an asset.
- Loans consist of a principal amount and an interest that borrowers must pay to lenders.
- Interest is the cost of borrowing money, and secured loans may involve asset seizure upon failure to repay.
- The video introduces the concept of how interest is calculated.
Chapter 3
Interest rates can be fixed or variable, impacting the risk and the cost of borrowing.
- Interest rates determine the monthly interest payment on the principal.
- Variable interest rates can fluctuate, making them riskier than fixed rates.
- Interest rates are different from APR, which also includes fees.
Chapter 4
The video explains loan payments, including the importance of the loan term and its impact on monthly payments.
- Monthly loan payments consist of principal repayment and interest.
- Shorter loan terms mean higher monthly payments but less interest over time.
- The video highlights using an online calculator to estimate monthly payments.
Chapter 5
The video concludes by encouraging viewers to learn about credit scores and utilize the website's tools.
- The upcoming video will discuss credit scores and their impact on loans.
- The website offers educational materials, a free credit score, and loan recommendations.