Money Management Chapter 16 CREDIT IN AMERICA Money Management Chapter 16

Advantages of Credit Expands your purchasing potential- People can buy more goods Increases standard of living Provides source of emergency funds Assists with budgeting Collect your spending records

Advantages of Credit Convenient Receive better service, preferred status Safer than carrying cash

Disadvantages of Credit Costs more than paying cash Interest and service charges Reduces Comparison shopping Shop where you only have Credit Ties up future income Always paying for things you already have Can lead to Overspending

Kinds of Credit Open-Ended Open 30-Day Account Agreement to lend the borrower an amount up to a stated limit. Open 30-Day Account Consumer promises to pay the full balance owed each month American Express

Types of Credit Revolving Credit Account Consumer has the option each month of paying in full or making payments Minimum payment is based on balance due Visa, Mastercard, and Discover

Closed-End Credit A loan for a specific amount that must be repaid, in full, including all finance charges, by a stated due date.

Service Credit Agreement to have a service performed now and pay for it later

Sources of Credit Retail Stores Credit Card Companies Sell directly to consumers Accepted only in that store Helps attract customers Credit Card Companies Visa, American Express, Discover, Mastercard Banks and Credit Unions Lower interest rates

Sources of Credit (con’t) Finance Companies Consumer Finance Company Mostly consumer loans to customers buying consumer durables Sales Finance Company Makes loans through authorized representatives. (GMAC) Higher interest rates

Sources of Credit (con’t) Pawnbrokers Business that makes high interest loans Private Lenders Parents, Grandparents, Relatives, Friends, and so on.

Other Sources of Credit Life insurance Policies Build value where you can borrow against the policy Does not have to be repaid but will reduce the value of the policy