1. Planned Borrowing

2. Most people use installment credit 12+ times during their life. Yet, only 1:3 shop for credit terms! DID YOU KNOW!

3. Planned Borrowing A knowing decision to borrow to finance a purchase or simply to borrow cash.

4. Planning Your Credit Usage When How often How much THE TASK OF DETERMINING:

5. The debt limit most people establish for themselves is lower than what lenders would be willing to lend. Establishing a Debt Limit

6. Debt-payments-to-disposable-income method Ratio of debt-to-equity method Continuous-debt method Establishing a Debt Limit

7. Credit Capacity Indicators * Not including housing Debt Payments-to-Income Ratio monthly payments* monthly after tax income 6-9

8. Credit Capacity Indicators Debt To Equity Ratio total liabilities net worth* = Should be < 1 *Excluding home value 6-10

9. Debt-Payment Limits as a Percentage of Disposable Income Percent For Current Debt* Take on Additional Debt? 10 or lessSafe limit; borrower feels little debt pressure. Could be undertaken cautiously. 11 to 15Possibly safe limit; borrower feels some pressure. Should not be undertaken. 16 to 20Fully extended; borrower hopes that no emergency arises. Only the fearless or foolhardy ask for more. 21 to 25Overextended; borrower worries about debt No, borrower should see a credit counselor. * Excluding home mortgage loans and convenience credit to be repaid in full when the bill arrives.

10. If one of the earners reduces/eliminates earnings, debts that had been manageable with two incomes may become overwhelming. Setting Debt Limits for Dual-Earner Households BEWARE!

11. Installment loans Secured/unsecured loans Purchase loan installment contracts The Language of Consumer Loans

12. Monthly Installment Payments (Principal and Interest) Terms of Installment4%6%8%10%12%14%16%18%20% 1 year (12 months)85.1586.0786.9987.9288.8589.7990.7391.6892.63 2 years (24 months)43.4244.3245.2346.1447.0748.0148.9649.9250.90 3 years (36 months)29.5230.4231.3432.2733.2134.1835.1636.1537.16 4 years (48 months)22.5823.4924.4125.3626.3327.3328.3429.3730.43 5 years (60 months)18.4219.3320.2821.2522.2423.2724.3225.3926.49 Monthly Installment Payment (Principal and Interest) Required to Repay $1,000* *To illustrate, assume you want to know how much the monthly payment would be to finance a $9,000 loan at 10% for 3 years. To repay $1,000, the figure is $32.27, multiply by 9 (for $9,000) to determine that $290.43 is required for 36 months of payments. When using amounts greater or less than $1,000, convert using decimals. For example, a loan of $950 at 10 percent for 3 years would be calculated as follows: $32.27 x 0.95 = $30.66.

13. Sources of Consumer Credit Parents and family members Commercial bank Credit union Life insurance company Savings and loan association Finance company Retailers Cash advances

14. Truth In Lending Rights The Truth In Lending Act requires creditors to provide you with accurate and complete credit costs and terms. APR Creditors must disclose credit terms and information...  In a clear and conspicuous manner  In a form you can keep

15. Calculating Finance Charges and APR Simple-interest method Discount method APR CALCULATIONS FOR SINGLE- PAYMENT LOANS:

16. Calculating Finance Charges and APR Simple-interest method Add-on method Discount method APR CALCULATIONS FOR INSTALLMENT LOANS:

17. Dealing With Over-indebtedness TEN SIGNS OF OVER-INDEBTNESS: 1.Exceeding debt/credit limit. 2.Running out of money. 3.Paying only the minimum due. 4.Requesting new cards and increases in credit limits. 5.Paying late or skipping payments. 6.Not knowing how much you owe. 7.Taking add-on loans. 8.Using debt consolidation. 9.Receiving notice of repossession or foreclosure. 10.Experiencing garnishment.

18. Dealing With Over-indebtedness Federal law regulates debt collection Bankruptcy as last resort Chapter 13 Chapter 7

19. History of Bankruptcies

20. Fair Debt Collection Practices Act Can’t be abusive or threaten Can’t call you at work if you say no Can’t tell boss and friends Can’t call you at odd hours Must follow set procedures The act does not apply to creditors that try and collect the debt themselves Collection agencies...

21. Impact of Divorce on Credit Pay attention to accounts held jointly Ask creditors to close joint accounts Remember, creditors can legally collect from either party Get updated copy of credit report

22. Alternative Lenders Pawnshop Rent-to-own program Check cashers Rapid refund services

23. Manage Over-indebtedness 1. Determine what is owed. 2. Focus budget on debt reduction. 3. Contact creditors. 4. Take on no new credit. 5. Refinance. 6. Find good help. 7. Avoid bad help.

24. Manage Student Loan Debt 1. Choose most advantageous repayment pattern allowed. 2. Consolidate student loans. 3. Pay electronically. 4. Be punctual with repayments. 5. Refinance with second mortgage loan.

25. Automobiles and Other Major Purchases

26. Guidelines for Wise Buying Control buying on impulse Pay cash Buy at the right time Don’t pay extra for a “name” Recognize the high price of convenience shopping Use life-cycle planning for major purchases Calculate unit pricing or price per hours worked.

27. Steps Before Interacting with Seller Prioritize wants Do pre-shopping research Price Trade-in Cost of financing Fit expenditure into budget

28. Purchasing a Car: A Research-Based Approach - Phase 1: Preshopping Activities nProblem identification. nInformation gathering. Personal contacts. Media information-television, websites Independent testing organizations- Consumer Reports Government agencies. Online Sources – www.edmunds.com, www.caranddriver.com, www.autoweb.comwww.edmunds.com www.caranddriver.comwww.autoweb.com

29. Phase 2: Evaluation of Alternatives Comparison shopping. Selecting vehicle options-convenience, appeal, etc. Comparing used vehicles- www.carmax.com, www.carfax.comwww.carmax.com www.carfax.com Leasing an automobile 1) lower payments, small initial cash outlay 2) no ownership in vehicle 3) maximum # of miles/year; charged for extra miles. 4) know the capitalized cost of the lease, the money factor, the monthly payment, number of payments, and the residual value. 8-8

30. BUYING VS LEASING AN AUTOMOBILE Purchase CostExampleYour FiguresLeasing CostsExampleYour Figures Total vehicle cost, includingSecurity deposit ($300) sales tax ($20,000) Down payment (or full amount if paying cash) $ 2,000.00 Monthly loan payment: $385 x 48 monthsMonthly lease payments: (this item is zero is vehicle is not financed). 18,480.00$385 x 36 months $ 13,860.00 Opportunity cost of down paymentOpportunity cost of (or total cost of vehicle if purchased with cash):security deposit: $300 $2,000 x 4 years of financing/ownership x 3%240security deposit x 3 yrs x 3%27 Less: Estimated value of vehicle at end of loanEnd of lease charges (if term/ownership period (6,000.00)applicable).800 Total cost to buy $ 14,720.00 $ 14,687.00

31. Phase 3: Determining Purchase Price Negotiation Know necessary information about the product. Deal with a person of authority to give you a lower price or additional features. Used-cars: Check newspaper ads, Kelly Blue Book (www.kbb.com), www.edmunds.comwww.kbb.comwww.edmunds.com New cars: Set-price dealers, car-buying services n Compare financing alternatives. Variety of lenders-some lenders may pre-approve you. Avoid being upside-down in your car. Look for rebates or low-interest financing. Consider the APR, total finance charge. Check out www.bankrate.com www.bankrate.com 8-9

32. Phase 4: Postpurchase Activities n Lemon Laws. n Maintenance and ownership costs n Use the item correctly to have improved performance and fewer repairs. n Investigate, evaluate and negotiate a variety of servicing options. n Operation costs; fixed and variable expenses. n Automobile servicing sources; dealers, service stations, garages, Wal-Mart, etc. 8-10

33. Comparison Shopping Warranties Implied Express Service contracts Leasing vs. buying Balloon financing

34. Successful negotiations require information Make the decision Evaluate the decision Negotiate and Decide On Best Deal

35. Financial Aspects of Leasing Capitalized cost - the price of the vehicle. Average buyer pays 92% of list, average person who leases pays 96% of list. Money factor - interest rate. Monthly payment amount and number of payments. Residual value - expected value of the vehicle at the end of the lease. You may decide to return, keep, or sell the vehicle. If the residual value is less than market value, return it. 8-20

36. Decision Making Grid Price30%92.772.151.5 Durability25%61.582.0102.5 Features20%61.281.6102.0 Warranty15%60.9101.581.2 Styling10%101.060.680.8 TOTAL100%7.37.88.0 Criteria Decision Weight (W) Appliance A Score (S)* W x S Appliance B Score (S) W x S Appliance C Score (S) W x S *Using a 10-point scale.

37. Buying services www.comsumerreports.org Internet sites www.buyingadvice.com www.carmax.com www.carsbelowinvoice.com www.edmunds.com www.autosite.com http://auto.consumerguide.com Help When Buying a New Vehicle 8 - 14

38. Get Things Fixed Get estimate in advance Ask how long repairs will take Get claim check Ask to be given all replaced parts Be available when at-home repairs are made Get written receipt

39. Choose Between Low Interest and Rebate Compare actual costs Consider opportunity cost of rebate Add opportunity cost of foregone rebate to finance charge of dealer financing

40. Buy a Used Vehicle Decide on features and options Decide how much to spend Select makes/models in price range Start search Check selection carefully Negotiate and decide

41. Get the Most for Your Car-Buying Dollar Buy used vehicles Buy used vehicles from private owners Visit dealerships at least three times Negotiate price first Consider leasing Use up your vehicles

42. Rental Car Basics Type Price and gas payment Additional fees Reservations Mileage restrictions Insurance and inspection