Loan Types and Classifications

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Questions and Answers

What type of loan allows the borrower to borrow and repay multiple times up to a specified ceiling amount?

Open-ended loan (correct)

Secured loan

Credit facility

Personal loan

What is the primary difference between a secured loan and an unsecured loan?

Interest rates

Credit limits

Collateral requirements (correct)

Repayment terms

What type of debt is an example of an open-ended loan?

Personal loan

Mortgage

Bank overdraft

Credit card debt (correct)

What happens to the collateral in a secured loan if the borrower defaults?

The lender takes possession of the collateral to cover the loan. Signup and view all the answers

What is the purpose of collateral in a secured loan?

To provide security for the lender in case of default Signup and view all the answers

What is the primary purpose of an education or student loan?

To pay off education-related expenses, such as college tuition and room and board Signup and view all the answers

What is the term used to describe the formal analysis of a loan request by a lender to determine the amount of risk?

Underwriting Signup and view all the answers

What is the benefit of lowering your interest rates?

Help you get out of debt faster Signup and view all the answers

What is the term used to describe the process of helping speed up the loan approval process?

Loan packaging Signup and view all the answers

What type of loan is used to finance the purchase of a new or used car?

Vehicle loan Signup and view all the answers

What is the primary goal of the loan department according to the loan administrator's role?

To ensure the loan department generates maximum business revenue Signup and view all the answers

What is the responsibility of the credit manager in regards to overdue and delinquent accounts?

To determine the reasons why accounts become overdue and delinquent and initiate proper measures Signup and view all the answers

What is one of the skills required of a loan administrator?

Advanced general ledger and spreadsheet management skills Signup and view all the answers

What is the minimum educational requirement for a loan administrator?

Bachelor's Degree in business, finance or business administration, or equivalent experience Signup and view all the answers

What is the purpose of a credit review?

To determine the reasons why accounts become overdue and delinquent Signup and view all the answers

What is the primary objective of Remedial Account Management?

To regularize credit and document deficiencies Signup and view all the answers

What does the Credit Review process validate?

The effectiveness of the credit monitoring and supervision system Signup and view all the answers

What is the primary concern of Credit Review?

To minimize credit risks Signup and view all the answers

What is the purpose of the Organization and Staffing aspect of the Credit Review process?

To establish the organizational set-up in terms of staff adequacy Signup and view all the answers

What is the primary goal of the Remedial Management aspect of the Loan Recovery process?

To show the action plan and results of recovery measures Signup and view all the answers

What is the primary objective of a collection program?

To reduce the amount of bad debt losses while controlling collection costs Signup and view all the answers

Which of the following is a force of collection that may be used to intimidate a customer?

Using profane language, insult, or obscenities Signup and view all the answers

What is the primary skill required for a collections agent to be effective?

Strong command of English language and good communication skills Signup and view all the answers

What is the purpose of the follow-up stage in the collection process?

To undertake successive actions at regularly spaced intervals Signup and view all the answers

What is the consequence of disclosing the names of persons who refuse to pay for past due accounts?

It may damage the customer's reputation Signup and view all the answers

Study Notes

Loan Definitions and Classifications

A loan is a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.
Types of loans: credit card debt, personal loans, bank overdrafts, credit facilities or lines of credit.
Open-ended loans are loans that can be borrowed over and over, with a credit limit that can be reused. Examples: credit cards and lines of credit.

Secured and Unsecured Loans

A secured loan is a loan that relies on an asset as collateral for the loan, which can be taken by the lender in case of default. Examples: car or property.
Unsecured loans do not rely on an asset as collateral.

Loan Terms

Short-term loan: 1 year or less
Medium-term loan: 1-5 years
Long-term loan: more than 5 years

Education or Student Loan

A loan offered to students to pay off education-related expenses, such as college tuition, room, and board.

Vehicle Loan

A loan used to purchase a new or used car.

Loan Administration

Loan administrators support or oversee the bank's loan administration processes.
Responsible for documenting, closing, dispersing, and servicing loans related to construction, small business mortgages, or commercial lending.

Collection Department

Responsible for monitoring and following up on receivables.
Determine the reasons why accounts become overdue and delinquent, and initiate measures to recover.

Qualifications of Loan Administrators

Bachelor's Degree in business, finance, or business administration, or equivalent experience.
Strict attention to detail, enthusiasm for collaboration, advanced general ledger and spreadsheet management skills, and strong command of English language and good communication skills.

Collection and Repayments

Strategies, organization, and procedures for recovery of receivables to reduce bad debt losses and control collection costs.
Stages of Collection:
- Preliminary Stage: sending of monthly payments
- Reminder Stage: sending reminders to customers several days after the due date
- Follow-up Stage: successive actions undertaken at regularly spaced intervals

Forces of Collection

Neglect of basic credit criteria
Lapses in loan implementation/non-compliance to approved terms and conditions

Remedial Account Management

Objectives:
- Nurse a substandard or doubtful account back to health
- Regularize credit and document deficiencies
- Strengthen weaknesses of the credit extension by way of additional collateral, security, or guaranty
- Locate missing customers (skip tracing)
- Anticipate debtor's defenses

Credit Review

An integral part of a total system for managing the credit portfolio.
Concerned with developing correct credit practices and procedures to minimize credit risks.
Scope:
- Credit Administration and Documents Management
- Problem Recognition: assessing the ability to anticipate adverse factors affecting credit risk and detecting potential problem accounts

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Description

Understand the basics of loans, including types of loans, open-ended loans, and secured and unsecured loans. Learn about credit card debt, personal loans, and more.