1. Personal Finance Chapter 16
CREDIT IN AMERICA
Personal Finance
Chapter 16

2. Certain terms are commonly used to describe credit, its availability and its cost.
Borrower: or debtor: When you borrow money or used credit
Creditor: The person or company who loans money or extends credit to you
Capital: is property you possess(bank accounts, investments, other assets)
Collateral: is property pledged to assure repayment of a loan.
Line of Credit: Pre-established amount that can be borrowed without collateral

3. Once you have completed the credit purchase, you owe money to the creditor. Principal: amount borrowed Balanced due: is the amount borrowed plus interest for the time you have the loan Finance Charge: total dollar amount of interest and fees you pay for the use of credit.

4. FINANCE CHARGES
Minimum payment: the least amount you may pay that month under your credit agreement.
Due Date: credit payments are due on a specific date or you will be charged a late fee
Late fee: charged to a balance if you do not pay within a certain time
Secured loan: you agree to repay entire debt or goods will be returned at end of a time

5. ADVANTAGES AND DISADVANTAGES OF CONSUMER CREDIT
Used correctly, credit can greatly expand your purchasing potential and raise your standard of living. Ex: credit allows you to purchase expensive item that you do not currently have the chance to buy, but can make payments over a time period.

6. Is Credit convenient?
Emergency funding: pre- established amount that can be borrowed on demand with no collateral.
Deferred billing: you do not get charged until a later date.

7. Disadvantages of using credit
Credit purchases may cost more than cash purchases
Merchants sometimes charge more for credit purchases because they are charged a fee
A finance charge of 18% a year is 1 ½ percent a month. On $1, balance the finance charge would be $15.00 a month
When you use credit, you tie up future income
Buying on credit can lead to overspending.

8. Kinds of Credit
Open-Ended credit: Credit cards are usually open ended, an amount with a limit and then back up to that limit once the amount falls below the limit
Open 30 Day Account: Consumer promises to pay the full balance each month Example American Express Card
Revolving Credit Account: Consumer has the option each month of paying in full or making payments

9. Credit Card Terms
Annual Percentage Rate (APR) cost of credit expressed as a yearly percentage rate
Free Period: (also called a grace period) Allows you to avoid the interest charge by paying your current balance in full before the due date shown on your statement
Annual Fees: can range form $15.00 – $500.00
Transaction Fees and Late Fees:
Method of Calculating the Finance Charge: Charges will vary

10. Sources of Credit Retail Stores: Credit Card Companies:
Banks and Credit Unions:
Finance Companies:
Loan Sharks: Unlicensed lenders who charge illegally high interest rates
Usury Laws: a set maximum interest rate that can be charged
Pawnbrokers
Private Lenders