1. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 1 Chapter 12 Business and Consumer Loans Section 1 Open-End Credit and Charge Cards

2. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 2 Open-End Credit Open-end credit– has no fixed payments, customer makes payments until balance is paid off: store charge accounts and charge cards, Mastercard, Visa Credit limit– maximum amount that may be charged on the account; based on income, assets, other debts, and credit history

3. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 3 Debit Card A sale paid for with a debit card authorizes the retailer’s bank to debit the purchaser’s checking account immediately upon receipt. Debit cards do not involve credit since their use results in an immediate debit, or withdrawal of funds, from an account.

4. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 4 Revolving Charge Accounts Itemized billing – statement of purchases, payments, refunds, and finance charges made each month Finance charges – interest charges, time-payment differential, or carrying charges Grace period – time frame for which no interest is charged if paid in full by the end

5. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 5 Revolving Charge Accounts Late fees – fee assessed for payments received after the due date Over-the-limit fees – charged by lender when borrower charges more than an approved maximum amount of debt.

6. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 6 Use the Unpaid Balance Method Calculates finance charges based on the unpaid balance at the end of the previous month Purchases or returns during current month are not used

7. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 7 Page 467 Quick Check 1

8. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 8 Use the Average Daily Balance Method Most revolving charge plans now calculate finance charges using the average daily balance method The balance owed on the account is found at the end of each day during a month or billing period All of these amounts are added

9. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 9 Use the Average Daily Balance Method That total is divided by the number of days in the month or billing period. The result is the average daily balance of the account This is used to calculate the finance charge

10. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 10 Page 473 Exercise 18

11. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 11 Example (cont) Step 1 Multiply each unpaid balance by the number of days for that balance. Step 2Total these amounts. Step 3Divide by the number of days in that particular billing cycle (month).