1. Borrowing Basics
Showing you the Way

2. Course Objectives By the end of this course, you will be able to:
Define credit
Explain why credit is important
Distinguish between secured and unsecured loans
Identify three types of loans

3. Course Objectives (Continued)
Identify the costs associated with getting a loan
Explain why it is important to be wary of rent to own, payday loan, and refund anticipation services
Determine if you are ready to apply for credit

4. “Credit” Defined
Credit is money you borrow to pay for goods or services
Credit is also called a loan
“Good” credit means making payments on time
“Bad” credit means it will be harder to borrow in the future

5. Why is Credit Important?
It can be useful in emergencies
It’s more convenient than carrying cash
It lets you make large purchases
It can affect your ability to get employment, housing, and insurance

6. Collateral
Property or another asset you promise to give to the bank if you can’t repay your loan.

7. Collateral Items
Car
Savings & Investments
Property

8. Types of Loans
Consumer installment loans
Credit cards
Home loans

9. Consumer Installment Loan
A loan used to pay for personal expenses, such as:
Automobile
Computer
Furniture
College tuition

10. Credit Cards Give you the ongoing ability to borrow money for:
Household
Family
Personal needs

11. Home Loans
Home purchase loans
Home refinance loans
Home equity loans

12. Practice Exercise- Types of Loans
Instructions:
Read the description of the purchase to be made
Fill in the blank with the name of the most appropriate loan type for that purchase

13. The Cost of Credit
Fees
Interest

14. Fees
Annual Maintenance Fees
Service Charges
Late Fees

15. Interest
The money financial institutions charge for letting you use their money.
Fixed
Variable

16. How much Does Credit REALLY Cost?
Amount financed $ APR 10.05% (credit score ) Term 36 months Finance Charge Total Paid $5, Watch out for “penalty APR’s” and “universal default” on credit cards.

17. Practice Exercise – Borrowing Money Responsibly
Instructions:
Read each question carefully
Answer the question
Be ready to support your answer

18. The True Cost of Alternative Financial Services
Rent to Own
Payday loan Services
Refund Anticipation Services

19. Rent to Own Services
Allows you to use the item by making monthly or weekly payments
The store owns the item until you make your final payment
Using rent to own services is more expensive than getting a consumer installment loan

20. Payday Loan Payday loans are loans that:
Are made for a fee to people who need money right away
Are paid back with the borrower’s next paycheck
Are renewed for an additional fee if not paid off in the agreed-on time period
Should be used only for emergencies only

21. Refund Anticipation Loans
These Short term loans are secured by your income tax refund
The money for the loans comes from a bank or finance company
They are more costly than you might think

22. The “Four C’s” of Credit Decision Making
Capacity
Capital
Character
Collateral

23. Questions?