20 Banking and Financial Systems Ongoing Assessments Outcome-Oriented Learning Multiple opportunities are provided for self-assessment within the chapter, as well as at the end of each chapter and unit, to check learning as the content is explored. Chapter 8 Lending 202 nit 3 Customer Services Chapter Summary Section 8 .1 Loans • Loans can be classifi ed as consumer or commercial, open-ended or closed-end, and secured or unsecured. • Many organizations and agencies exist to provide fi nancial assistance and support to businesses, large and small. Section 8 .2 Real Estate Loans • A loan made to purchase real estate is a mortgage loan. A mortgage loan is a closed-end secured loan. • The characteristics of equity loans are similar to mortgage loans, and are often called second mortgages. Section 8 .3 Granting Loans • Lenders use the fi ve C’s of credit to evaluate a loan applicant’s creditworthiness—character, capacity, capital, collateral, and conditions. • Lenders use a loan applicant’s credit score to evaluate the risk in granting a loan. The FICO score is based on the individual’s payment history, amount owed, or outstanding debt, length of credit history, new credit, and type of credit. • The loan application process includes applying, documenting, submitting, underwriting, approving, closing, and funding. Section 8 .4 Profi ts and Losses fi • Lenders must identify a loan’s nominal annual rate, annual percentage rate, and periodic interest rate. • The most common way to calculate fi nance charges is the average daily balance method. The previous balance method is the easiest way to calculate fi nance charges and the adjusted balance method is most favorable for borrowers. • Most often, default loans are caused by borrowers who do not make payments on time. Collecting on loans in default require the lender’s time and money. • Liquidation and reorganization are two types of bankruptcies. Check Your Banking IQ Now that you have fi nished this chapter, see what you know about banking by taking the chapter posttest. www.g-wlearning.com/fi nance/ Review Your Knowledge On a separate sheet of paper or in a word processing document, match the following terms with the defi nition that fi ts best. A. signature loan B. credit bureau C. subprime loan D. default E. underwriting 1. Gathers, analyzes, and summarizes credit-related information on consumers. 2. Chartered and supported by the government to promote a public interest. 3. Lenders analyze risks and set conditions on a loan. 4. When a company borrows money. 5. An unsecured loan. 6. Property pledged to secure a loan. 7. Failure to meet the terms of a loan agreement. 8. A loan with fees and interest rates that are higher than the rates given to a person who meets all of the underwriting criteria. 9 . Uses the amount the customer owed at the end of the previous billing period to calculate the interest owed for the current month. 10. Fees applied when a mortgage is signed. On a separate sheet of paper or in a word processing document, answer each of the following questions. 11. Why is the interest rate for an unsecured loan often higher than the interest rate for a secure loan? 12. What is the difference between a fi xed-rate mortgage and an ARM? 13. If a home’s value is $150,000 and the balance of the mortgage loan is $80,000, how much equity does the owner have? 14. What fi ve elements are considered in the FICO score? 15. What is the purpose of bankruptcy? F. commercial loan G. government-sponsored enterprise H. closing costs I. previous balance method J. collateral Ch08.i n dd 202-203 6/29/2017 3:39:21PM Checkpoint questions provide point-of-coverage assessments at the end of each section. Review Your Knowledge questions review basic concepts and provide an opportunity to evaluate what has been learned. Check Your Banking IQ post test concludes each chapter with an opportunity to evaluate what the student learned about the content presented in the chapter. A QR code makes it convenient to use a smartphone to launch the posttest. The posttest can also be accessed on the G-W Learning companion website. Unit 3 Each Chapter Summary provides a quick overview and reinforcement of content.