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Chapter 18 Responsibilities and Costs of Credit

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1 Chapter 18 Responsibilities and Costs of Credit
MYPF CHAPTER 18 13-SEPT-2001 Chapter 18 Responsibilities and Costs of Credit Using Credit Responsibly Analyzing and Computing Credit Costs © South-Western Educational Publishing

2 Lesson 18.1 Using Credit Responsibly
Describe the responsibilities of consumer credit. Discuss how to protect your credit card from fraud. Explain how you can reduce or avoid credit costs. © South-Western Educational Publishing

3 Responsibilities of Consumer Credit
Responsibilities to yourself Responsibilities to creditors Creditors’ responsibilities to you © South-Western Educational Publishing

4 Protecting Yourself from Credit Card Fraud
Safeguarding Your Cards Sign cards immediately. Carry only cards you need. Keep a list of cards and information about them. Notify creditors when cards are lost or stolen. Watch card during transactions. Tear up any carbons. Do not lend cards or leave them lying around. Destroy expired cards. Don’t give credit card information by phone to people or businesses you do not know. Keep receipts and verify charges on statements. © South-Western Educational Publishing

5 Protecting Yourself from Credit Card Fraud
Protecting Your Cards Online Deal with companies you know and trust. Look for secure site symbol. Review privacy policy. Look for site seal of non-profit watchdog group. © South-Western Educational Publishing

6 Avoiding Unnecessary Credit Costs
Accept only the amount of credit that you need. Make more than the minimum payment. Do not increase spending as income increases. Keep the number of credit cards to a minimum. Pay cash for purchases under $25. Understand the cost of credit. Shop for loans. Take advantage of rebate programs. © South-Western Educational Publishing

7 Lesson 18.2 Analyzing and Computing Credit Costs
Explain why credit costs vary. Compute and explain simple interest and APR. Compare methods of computing finance charges on revolving credit. © South-Western Educational Publishing

8 Why Credit Costs Vary Source of credit Total amount financed
Length of time you are making payments Ability to repay debt Type of credit selected Collateral Prime rate Economic conditions Business’s cost of providing credit © South-Western Educational Publishing

9 Computing the Cost of Credit
Simple interest formula Annual percentage rate formula Credit card billing statements © South-Western Educational Publishing

10 Simple Interest Formula
I  P  R  T I = interest P = principal R = interest rate T = time © South-Western Educational Publishing

11 Simple Interest Formula Variations
P * T P  I R * T © South-Western Educational Publishing

12 Annual Percentage Rate Formula
APR  2  n  f P (N  1) n = number of payment periods in one year f = finance charge P = principal or amount borrowed N = total number of payments © South-Western Educational Publishing

13 Credit Card Billing Statements
Calculated 3 different Ways Adjusted balance method Previous balance method Average daily balance method © South-Western Educational Publishing

14 Credit Card Billing Statements
Adjusted balance method Beginning Bal – Pmt Amt = Adj Bal. Adj. Bal * Int. Rate = Fin. Charge Adj. Bal + Fin. Charge = New Balance © South-Western Educational Publishing

15 Credit Card Billing Statements
Previous balance method Beg. Bal. * Int. Rate = Fin. Charge Beg. Bal. + Fin. Charge = Adj. Bal Adj. Bal. – Pmt Amt = New Bal © South-Western Educational Publishing

16 Credit Card Billing Statements
Average daily balance method Is computed by adding up the balance for each day of the month/cycle and dividing by the number of days in the month/cycle Avg Daily Bal * Int. Rate = Fin Charge © South-Western Educational Publishing

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