CH 18 Sec 1 Credit Fundamentals

Using Credit × Credit- the privilege of using someone else’s money for a period of time × Debtor- anyone who buys on credit or receives a loan × Creditor- one who sells on credit or makes a loan × The privilege is based on the belief that the person receiving the credit will honor a promise to repay the amount owed.

Types of Credit × Trade Credit- when a company receives goods from a supplier and pays for them later. × Loan Credit- when you borrow money to use for a specific purpose × Installments- when a borrower pays back in specific amounts × Sales Credit- charge a purchase at the same time you buy the good or service

Accounts  Charge Accounts- a contract between the firm offering the account and the customer  Regular account- the buyer must make a full payment for the amount owed usually 25 to 30 days.  Budget accounts- the c8ustomer to make payments of a fixed amount over several months  Revolving accounts- may charge purchases at any time, but part of the debt must be paid every month. Credit limit- maximum amount that may be owed at one time Finance charge- (only added if the total amount is not paid) the total dollar cost of credit

Credit Cards × Bank cards- MasterCard and visa are best known. × Charge Cards- once called travel and entertainment cards. Need a membership to be a owner × Affinity Cards- Allow organizations, charities, and sport teams to receive a small percentage of credit sales. × Retail store card- credit cards from their store

Installment Credit  Is a contract issued by the seller that require periodic payments at specific times Down payment- payment of part of the purchase Repossess- take back Differs from using credit cards

Loans  Installment loans- when you agree to make monthly payments in specific amounts over a period of time  Single-payment loan- is when you don’t pay anything back until the end of the loan period Promissory note- written promise to repay based on excellent credit history – Principal: amount that is promised – Time: days or months from the date written until it should be paid – Date of maturity: date the note is due –Payee: The one to whom the note is payable – Interest rate- rate paid for the use of the money – Maker- one who promises to make the payment

More Loans × Collateral- Property that is used as security × Secured loan- when you give security to be held by the lender until the loan is paid back × Cosigner- someone who signs for you because they have better credit than you Loans are alternatives to using credit and installment cards.

Benefits of Credit × Convenience: Shop w/o carrying much cash × Immediate Possession: buying expensive necessities now an paying for the later × Savings: credit customers can get more sales then noncredit customers × Credit Rating: Reputation for paying bills on time × Useful for Emergencies: can help in unexpected situations

Credit Concerns × Overbuying: buying something that is more expensive then you can afford × Careless buying: not to waiting for a better prices on an item you want × Higher prices: If a store usually uses cash rather than credit there could be collection costs × Overuse of credit: Total amount can become a problem

Assessment 1. Large purchases( such and appliances and cars) are commonly bought using… a. bank credit card b. installment credit c.Charge account d. trade credit 2. Signing a promissory note occur when using… a.Credit card b.Charge account c.Loan d.trade credit 3. Which of the following is an advantage of using credit? a.Overbuying b.Convenience c.Higher prices` d.Lower credit rating

Assessment 1. Large purchases( such and appliances and cars) are commonly bought using… a. bank credit card b. installment credit c.Charge account d. trade credit 2. Signing a promissory note occur when using… a.Credit card b.Charge account c.Loan d.trade credit 3. Which of the following is an advantage of using credit? a.Overbuying b.Convenience c.Higher prices d.Lower credit rating