May 10 & 11 Objectives Homework Today’s Agenda (82) Compare the types of consumer credit. (83) Describe the advantages and disadvantages of consumer credit. Homework Today’s Agenda Daily Quiz Banking Services Checking Account Project due today Understanding Credit PowerPoint + Notes. Calculating Credit Worksheet. Closure What are the pros and cons of using credit instead of paying in cash? BRO: How does the use of credit differ from checking account maintenance?

Describe the advantages and disadvantages of consumer credit. Task 83

Consumer Credit Advantages Disadvantages Convenience Immediate Possession of Purchase Avenue for Savings Establish & maintain good credit rating Usefulness in emergencies Danger of Overbuying Temptation for Impulse Purchases Assessment of Fees interest, late payment, over credit limit, service charges, finance charges Paying Higher Prices for Purchases Bad Credit Rating Poor Credit Management

Answer the three questions in your notes. Why protect your credit rating? It will help you qualify for low interest rates and get the best loans. Good for your overall financial health. Credit debt & salary: debt-to-income ratio. <15% good, 15%-20% Caution, >20% Danger Why a credit card?: More convenient for hotel or car to be put on hold, without tying up your funds, especially if you have to cancel. Think About It!

Compare the types of consumer credit. Task 82

Types of Credit (1) Installment Loans (2) Revolving Credit An installment loan is also known as “closed end” credit. Equal Monthly Payments Specified Period of Time Examples 15 – 30 Year Mortgage 48 – 60 Month Car Loan 10 Year Student Loan Revolving credit is also referred to as “open end.” Available Line of Credit Credit Limit Examples Credit Card Home Equity Line

Types of Credit (3) Secured Loans (4) Unsecured Loans A secured loan requires the borrower to pledge some asset as collateral. Advantages include: lower interest rates larger loan amounts better terms Examples Mortgage Auto Loan (New and Used) An unsecured loan is issued solely based upon a borrower’s creditworthiness. No collateral required Need a high credit rating Examples Credit Cards Student Loans

Types of Credit (5) Title Loan (6) Payday Loan A title loan is a short-term loan based on collateral assets, such as a car title. Advantages Quick Access Does not consider credit rating Disadvantages High interest rate A payday loan, or cash advance, is a short-term loan for a small amount of money that requires a post-dated check. Advantages Quick Access to $100 - $1500 Does not consider credit rating Disadvantages Must repay within 30 days or less High interest rate / fees

Terms for Credit When comparison shopping for credit terms, you should consider: Interest Rate Choose the lowest APR possible & avoid extra fees. Cosigner Is a cosigner (someone who agrees to repay the debt if you can’t) required? Grace period How much time is allowed to repay the debt without interest charges?

Calculating the Cost of Credit Worksheet