Chapter 7 Buying Decisions. Slide 2 How Is Interest Computed on Credit? Finance charges are interest and fees you pay on the credit card balance. A fixed.

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Presentation transcript:

Chapter 7 Buying Decisions

Slide 2 How Is Interest Computed on Credit? Finance charges are interest and fees you pay on the credit card balance. A fixed interest rate is set. A variable interest rate can change. Interest can be computed using the o adjusted balance method, o previous balance method, o or average daily balance method. 7-3 Computing the Costs of Credit

Slide 3 Credit Card Statement (partial) 7-3 Computing the Costs of Credit

Slide 4 What Are Common Credit Policies? 7-3 Computing the Costs of Credit Minimum payment Penalties and fees o Over-the-limit fee o Cancellation fee Interest rate increases Lowered credit limit

Slide 5 How Can You Make Wise Credit Choices? Be cautious about special offers, such as low introductory rates and balance transfers. Be wary of easy access credit. o It is quick and easy but has high or hidden fees. Be careful when applying for credit online. o Avoid credit offers that come in s or pop-up ads; use a secure site. Examine your credit card statement. o Make sure charges, credits, and fees are correct. 7-3 Computing the Costs of Credit

Slide 6 Payday Loan 7-3 Computing the Costs of Credit A payday loan is a short-term loan to cover expenses until your next payday. Interest and fees can be substantial. The formula for computing the annual percentage rate of a payday loan is: Loan fee ÷ Loan amount × Number of days in the year ÷ Loan term in days If you borrow $350 for two weeks (14 days) and pay a loan fee of $50, the annual percentage rate would be calculated as follows: $50 ÷ $350 × 360 ÷ 14 = 3.67, or 367% APR