Loans
Paula's Precision Book Printing Company has decided to add binding the books to its services. Since the binding equipment is quite expensive, Paula borrows the money to purchase it. Paula borrows $20,000 from Ocean Vista Bank. To loan her the money, the bank will charge Paula interest at the rate of 6 percent. In addition, Paula pledges the printing presses that she owns as collateral. This means that if she doesn't make her payments, the bank can take her printing presses.Promissory NoteOcean Vista, California May 17, 20XXI promise to pay Ocean Vista Bank (Obligee) the principal sum of twenty thousand and no/100 ----- dollars plus interest at the rate of 6 percent. Payments will be made in installments of one thousand and no/100 ----- dollars on the first day of each month beginning July 1, 200X, continuing until said principal and interest have been paid.As collateral, Paula's Precision Book Printing Company pledges its three Vandenberg printing presses. If any installment is not paid when due, Ocean Vista Bank may take possession of the three printing presses.Paula ParkerBorrower (Obligor)
WHAT DO YOU KNOW?
Circle T or F to indicate whether each of the following statements is true or false.| Q1 |
T |
F |
1. Paula Parker is an obligor. |
|
A1:
| True. Paula Parker is borrowing the money. An obligor is someone who is obligated to repay a loan. An obligor is a debtor. |
| Q2 |
T |
F |
2. The term collateral means printing presses. |
|
A2:
| False. Collateral refers to some property that a borrower pledges to protect the lender's investment. If the borrower does not meet the terms of the loan, the lender can take the collateral. The collateral may be any property that the lender is willing to accept as security for the loan. |
| Q3 |
T |
F |
3. The term principal refers to the amount borrowed. |
|
A3:
| True. Principal refers to the amount of money borrowed. |
| Q4 |
T |
F |
4. Rate of interest refers to a percentage. |
|
A4:
| True. Rate refers to a percentage. |
| Q5 |
T |
F |
5. An obligee owes money to an obligor. |
|
A5:
| False. An obligor owes the money to the obligee. The obligor is the one who owes. |
| Q6 |
T |
F |
6. A promissory note is an agreement regarding a loan. |
|
A6:
| True. A promissory note is an agreement about a loan, its amount, rate of interest, and terms of payment. |
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TERMS RELATED TO LOANS
principal
the amount borrowedrate
in this context, the percent that is used to calculate the interest on a loan.interest
payment for the use of someone else's money; the dollar amount of the interest is usually calculated as a percentage of the money borrowed; the percentage is called the ratecollateral
property pledged by a borrower to protect the interests of the lender; if the borrower does not meet the terms of the loan, the lender may take the collateralpromissory note
an agreement between a borrower and a lender that states that the borrower will repay a certain loan amount at a certain rate of interest; any terms of the loan are also stated, such as the amount of the payments and when they are due; the borrower and the lender both sign the noteobligee
the party to a promissory note who is the lender of the moneyobligor
the party to a promissory note who is the borrower of the money |
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