1. Chapter 16 Credit in America
MYPF CHAPTER 16
13-SEPT-2001
Chapter 16 Credit in America
What Is Credit?
Types and Sources of Credit

2. Describe the history of credit in America.
Lesson 16.1 What Is Credit?
Describe the history of credit in America.
Define basic credit vocabulary.
Discuss the advantages and disadvantages of using credit.

3. The History of Credit The early years
Need arose when we established currency economy
Around time of the Industrial Revolution
When people were no longer self-sufficient
At a general store bought “on account”
Banks lent money to farmers
High interest rates – 25 to 50%

4. The History of Credit The 1900s Lower interest rates spurred economy
People had more purchasing power – demand for goods and services increased
Banks were more willing to lend money
1920 – 1990
Credit was way of life, not just for emergencies

5. The History of Credit The 1900s 1970s 1990s
First legislation to protect consumers
People began to misuse credit
Credit counseling first appeared
1990s
Record numbers of people declared bankruptcy as misuse continued
Even lower rates encouraged economic growth
Began to see non-bank credit cards and reward cards

6. The History of Credit Credit today Abundant and easy to get
Many people shop online using credit cards

7. The Vocabulary of Credit
Borrower or debtor
When you borrow money or use credit
Creditor
Person or company lending you money
Capital
Property you own that is worth more than your debts

8. The Vocabulary of Credit
Collateral
Property pledged towards repayment of loan
Don’t pay your loan, they take your items
Repossessed
Ownership of item goes to bank if you don’t pay loan
Principal
Amount borrowed (or charges)

9. The Vocabulary of Credit
Finance charge
Interest you pay on the amount borrowed
Also referred to as handling charges, services charges or carrying charges
Minimum payment
On a credit card statement, the least you can pay
May barely cover finance charges

10. The Vocabulary of Credit
Due Date
Typically days from receipt of bill
Assessed late fee if not paid by due date
Added to balance – you’ll end up paying interest on the late fee
Installment Agreement
Make regular payments for a set period of time
Type of “secured loan”
Goods are collateral

11. Advantages and Disadvantages of Consumer Credit
Purchasing power
Emergency funds
Convenience
Deferred billing
Safety
Disadvantages
Higher prices
Finance charges
Tie up income
Overspending

12. Lesson 16.2 Types and Sources of Credit
List and describe the kinds of credit available to the American consumer.
Describe and compare sources of credit.

13. Kinds of Credit Open-ended credit
Agreement to loan up to a specified amt
Credit cards
Option to pay off balance or repaying it over many months
Referred to as “Revolving Credit Agreement”
Open 30-Day Account
Balance must be paid in full within 30 days
Usually high or no credit limits

14. Kinds of Credit Closed-end credit Loan for a specific amount of money
Auto, home, furniture, etc.
Do not allow continuous borrowing
Sometimes called “installment loan”

15. Kinds of Credit Service credit Receive service, pay for it later
Professional services
Doctor, dentist, lawyer, contractor, etc.
Electric, phone, water, etc.
May offer a budget plan

16. Credit Card Terms Annual percentage rate (APR)
Free period (grace period)
Annual fees
Transaction fees and late fees
Method of calculating the finance charge

17. Sources of Credit Retail stores Banks and credit unions
Finance companies
Loan Sharks – unlicensed, illegally high interest rates
Usury Laws – set maximum interest rates allowable
Finance companies charge this rate!
Pawnbrokers
Make high interest loans based on items held as collateral
Private lenders