USING CREDIT SSEPF4: The student will evaluate the costs and benefits of using credit

Becoming Creditworthy: The Three C's Character /Credit History (Are you likely to pay the money back?) Capacity (Can you afford the loan/credit limit?) Collateral (Do you have anything the bank can seize if you don’t repay?)

Interest Rates: The Cost of Borrowing Money Simple Interest Rates Compound Interest Rates Interest charged ONLY on the ORIGINAL amount borrowed Bank loans Interest charged on the original amount borrowed PLUS the EXISTING amount owed

Credit Cards Benefits Disadvantages Proper use can build positive credit history Emergency use Annual Fees Finance charges compounded monthly Variable interest rates

Practice Richard’s family wants to buy a new entertainment system that costs $2,000. They could get a 3-year personal loan from the bank at a fixed annual rate of 9.5%. They could also get a 3-year loan from a finance company that charges 8%, compounded annually. Calculate the total cost of each loan after 3 years, and then decide which credit offer the family should accept.

Making Wise Credit Choices Can I really afford this debt? MONTHLY INCOME – Taxes – Health Insurance – fixed expenses – variable expenses = Money Available

Jonathan’s Financial Information for July Practice Jonathan’s Financial Information for July Expenses Income Fixed $1,250 Gross Wages (November) $4,000 Variable $1,350 Mandatory deductions from Jonathan’s wages (November) Income Tax $600 FICA $325 Health Insurance $35 Other $20 If Jonathan’s income and expenses remain the same, can he afford a car payment of $600 per month?