Lesson 1: Loans

In-Depth Explanation

Loan Application & Approval

You apply for a loan by providing personal information, financial details, and the amount you want to borrow. The lender (bank, credit union, etc.) checks things like your credit score and income to see if you’re likely to repay the loan. If they approve you, they’ll offer the loan with specific terms (how much you can borrow, the interest rate, and repayment schedule).

Loan Terms & Disbursement

Once approved, the lender explains the loan terms—including how much you’ll borrow, the interest rate (fixed or variable), and the loan period (how long you have to pay it back). After you agree, the lender gives you the money, either in cash, directly to your bank account, or to a third party (like a car dealership or house seller).

Repayment Process

You start making monthly payments. Each payment covers two parts:

• Principal: The original amount you borrowed.
  
  

• Interest: The cost of borrowing the money. In the beginning, most of your payments will go toward interest, but over time, more will go toward paying off the principal.
  
  

Loan Payoff

When you’ve made all the required payments (including both principal and interest), the loan is paid off. You're no longer obligated to pay anything further, and the lender closes the loan.

Consequences of Missing Payments

If you miss a payment or don’t pay on time, the lender can charge fees, report it to credit agencies (lowering your credit score), or take legal action if the payments are significantly overdue.