Credit 8.01 Evaluate various sources of credit available to the government, business, and consumers. T G3

Who uses Credit? Consumer Credit  Credit used by people for personal reasons. Commercial Credit  Credit used by businesses. T G4

Types of Credit Charge Accounts – most common type of short- term or medium-term credit.  Regular Charge Accounts Require that you pay for purchases in full within a certain period of time.  Revolving Charge Accounts Allows you to borrow or charge up to a certain amount of money (credit limit) and pay back a part or the entire balance each month.  Budget Charge Accounts Allows you to pay for costly items in equal payments spread out over a period of time. T G5

Credit Cards Single-Purpose Can only be used to buy goods or services at the business that issued the card. Examples: JC Penney, Sears Multipurpose Similar to a revolving charge account. May be used at several locations. Examples: Visa and Master Card Travel and Entertainment Similar to regular charge accounts. Must be paid in full each month. Example: American Express T G6

Banks and Other Financial Institutions Single Payment Loan  Debtor pays off loan in one payment.  Promissory Note Written promise to repay with interest. Installment Loan  Repaid in regular payments. T G7

Installment Loans Types:  Student, mortgage, automobile, etc. Secured vs. Unsecured  Secured loans are backed by collateral (help guarantee the repayment of a loan). Closed vs. Open Ended  Closed-end credit is used for a specific purpose and involves a definite amount of money.  Open-end credit gives you a certain limit on the amount of money you can borrow. Cosigner  Responsible for the repayment of a loan if the original party does not pay. T G8

Seller-Provided Credit Many stores provide credit to customers. Same as Supplier Credit – used by companies for supplies purchased on a regular basis. T G9

Consumer Finance Companies Specialize in loans to people with poor credit ratings. The cost of credit is higher than other institutions. T G10

Payroll Advance Services Short-term loans. Pawnshop  Based on the value of something you own. “Borrow Until Payday” Loan  Cost is extremely high. T G11

Bonds Bonds – written promise to repay a loan with interest on a specific date. The buyer of the bond is considered the creditor. Corporate Bonds  Usually used to finance buildings and equipment. Municipal Bonds  State and local governments use these to finance projects. Savings Bonds  Sold by federal government. T G12

Other Sources of Credit for Businesses Small Business Administration  Offers a number of financial, technical, and management programs to help businesses. T G13

Other Sources of Credit for Consumers Life Insurance Plans  Cash Value Insurance Provides both savings and death benefits. Retirement Plans T G14