1. Money Management Chapter 16
CREDIT IN AMERICA
Money Management
Chapter 16

2. Advantages of Credit Expands your purchasing potential-
People can buy more goods
Increases standard of living
Provides source of emergency funds
Assists with budgeting
Collect your spending records

3. Advantages of Credit Convenient
Receive better service, preferred status
Safer than carrying cash

4. Disadvantages of Credit
Costs more than paying cash
Interest and service charges
Reduces Comparison shopping
Shop where you only have Credit
Ties up future income
Always paying for things you already have
Can lead to Overspending

5. Kinds of Credit Open-Ended Open 30-Day Account
Agreement to lend the borrower an amount up to a stated limit.
Open 30-Day Account
Consumer promises to pay the full balance owed each month
American Express

6. Types of Credit Revolving Credit Account
Consumer has the option each month of paying in full or making payments
Minimum payment is based on balance due
Visa, Mastercard, and Discover

7. Closed-End Credit
A loan for a specific amount that must be repaid, in full, including all finance charges, by a stated due date.

8. Service Credit
Agreement to have a service performed now and pay for it later

9. Sources of Credit Retail Stores Credit Card Companies
Sell directly to consumers
Accepted only in that store
Helps attract customers
Credit Card Companies
Visa, American Express, Discover, Mastercard
Banks and Credit Unions
Lower interest rates

10. Sources of Credit (con’t)
Finance Companies
Consumer Finance Company
Mostly consumer loans to customers buying consumer durables
Sales Finance Company
Makes loans through authorized representatives. (GMAC)
Higher interest rates

11. Sources of Credit (con’t)
Pawnbrokers
Business that makes high interest loans
Private Lenders
Parents, Grandparents, Relatives, Friends, and so on.

12. Other Sources of Credit
Life insurance Policies
Build value where you can borrow against the policy
Does not have to be repaid but will reduce the value of the policy