SOURCES OF CREDIT Independent Living December 14, 2015

Sources of Credit: ■The tree types of credit comes from many different credit sources ■Sources include: –Credit Card Companies –Retail Stores –Banks/Credit Unions –Finance Companies –Pawnbrokers –Private Lenders

Source No. 1: Credit Card Companies: ■Direct offers come from independent companies –Capital One –America Express ■Credit Card companies offer two different types of cards –All-purpose cards –Affinity cards

All-purpose cards ■Accepted nationwide, and even in some international countries ■Accepted as payment for ALMOST any purchase –Clothes in department stores –Meals at restaurants ■Comes with an automatic line of credit up to a specific limit –Limit set by card issuer ■Depending on card- possibility of cash advance

Affinity cards ■Credit cards offered by specific organizations –Professional associations –College alumni associations ■Fully issues by credit card companies, sponsored by business with their name and logo on card –Organization co-sponsors cards and will receive a certain percentage of the sales or profits generated by the card ■Rates and fees range vary widely, and can by multiple time more expensive then any other option

SOURCES OF CREDIT Independent Living December 15, 2015

Review: ■How much can an annual fee cost you? Can it be paid over time or does it have to be paid in one month? ■Are there any incentives with annual fees? ■How much can a transaction fee cost you? ■What does the Credit Card Act of 2009 state in regards to penalty fees? ■What are the two different ways to calculate finance charges? ■What is the first source of credit? What type of cards are provided?

Source No. 2: Retail Stores ■What do retail stores do? ■Examples: Macy’s, Gap, Wal*Mart ■Most cards offered by retail stores are only accepted at the specific stores ■Incentives provided to customers include discounts, advanced/prior notice of sales, and other privileges

Source No. 3: Finance Companies ■Mostly used by people who are turned down by their banks or credit unions ■Defined as: –An organization that makes high0risk consumer loans ■Second to banks in volume of credit extended –Growth is partially the result of efforts to eliminate loan sharks ■High-risk loans usually come with extremely high interest rates –All depends on if the state has usury law

Source No. 3: Finance Companies – Usury Law ■Law that sets a maximum interest rate that may be charged for consumer loans –In states where usury law exists, finance companies always charge maximum rates –In state where usury law doesn’t exist, finance companies only charge as much as customer is willing to pay –When emergency arises, people get charged higher rates

Source No. 3: Finance Companies – Types ■Consumer finance company –Makes most of its loans to consumers who are buying durable goods ■Sales finance company –Makes loans to consumers through authorized representatives, such as car dealerships

Source No. 4 Pawnbrokers ■Legal businesses that makes high-interest loans based on the value of personal possessions pledged as collateral ■Customer brings possession to be appraised, pawnbroker extends credit based on total value of possession –Loan amount extended is considerably less then appraised value of the possession (usually 10-25%)

Source No. 5: Banks and Credit Unions ■Commercial Banks: –Main source of closed-end loans and lines of credit offered to individuals and/or companies ■loans are made only for specific purposes –home, car, vacation –interest tends to be lower than on credit cards –collateral is almost always used as security ■Credit Unions: –Loans made specifically to members –Interest rates are sometimes lower than most other places ■ ​ Credit unions are non- profits and are organized to benefit members –Credit unions may be more willing to make loans to members because they have a steak in the company