1. Interest, Payments, and Credit

2. Interest What is interest?
Payment people receive when they lend money or allow someone else to use their money
What types of things might you receive interest for?
What types of things might you pay interest for?

3. Credit
Borrowing $ to pay for something now while promising to repay it later
Lender- Person who loans someone the money to buy an item
Borrower- person who receives the loaned money

4. Annual Percentage Rate
The annual cost of credit expressed as a percentage of the amount borrower
Represents the actual yearly cost of funds over the term of a loan
Includes any fees or additional costs associated with the transaction
Example: a credit card may charge 1% a month, and its APR is 1% x 12 months, or 12%.

5. Credit Rating
Evaluation of the likelihood of a borrower to default on (or be unable to repay) a loan

6. Collateral
Property (like a house, car, or other valuable item) that a borrower pledges as security for a loan
If a borrower fails to repay a loan, the lender can take the collateral as payment

7. Credit Score
3 digit number that tells how likely you are to repay your debt
FICO is tight-lipped about exactly how the scores are calculated. But they do give the weights of various criteria that they look at: 35% payment history, 30% amount owed, 15% length of history, 10% new credit, 10% types of credit used.

8. Bankruptcy The inability to pay debts
It remains on your credit rating from 7-10 years
Makes it extremely hard to get a loan or receive credit

9. Sources of Credit
Credit cards
Mortgages
Car loans

10. Benefits of Credit
It allows you to obtain something you want without waiting until you can save the entire purchase price
Making monthly payments on time can teach your financial discipline

11. Drawbacks of Credit
People may get in over their heads- bought more than they can afford
Bankruptcy
Bad credit score-makes it hard to get loans

12. Responsibilities of a Borrower
Have a plan to makes all the payments
Understand all aspects of the agreement