1. Copyright 2007 Thomson South-Western Chapter 8 Paying for Credit

2. Slide 2 Manual Payments Cash Personal checks Money orders Bank checks –Cashier’s check –Certified check 8-1 Payment Methods

3. Cash Advantages cash is accepted everywhere for payments. The receipt serves as proof of payment and is another advantage to this payment method Disadvantages carrying large amounts of cash can be unsafe. –You may be robbed, or – you may lose the money. Another disadvantage is that the cash must be delivered in person. Slide 3

4. Personal Check Advantages Checks are easy and inexpensive to use. Mailing checks are relatively safe. Cancelled checks or bank statements showing checks that have been processed provide proof of payment. Disadvantage Checks can get lost or delayed in the mail. If the check does not reach the creditor before the due date, you may be charged a late fee. Slide 4

5. Money Order is a type of check that directs payment of a sum of cash to a payee (a person or company). Advantage is that it is prepaid. The payee is guaranteed payment because this type of check cannot bounce. A money order can also be sent safely by mail. Disadvantage is that getting one can be inconvenient. you may have to stand in line and pay for the money order using cash. you may be able to pay by personal check. pay a fee for the money order. Slide 5

6. Cashier’s Check A cashier’s check is drawn on bank funds. Slide 6

7. Certified Check is a personal check for which payment is guaranteed by the bank on which it is drawn. Slide 7

8. Slide 8 Electronic Payments Online and telephone payments Online banking Automatic payments Wire transfers 8-1 Payment Methods

9. Slide 9 Electronic Payments 8-1 Payment Methods Users can enter bank account information to set up online payments.

10. Slide 10 Prepayment Penalty A fee charged when you repay a loan before the agreed-upon time 8-1 Payment Methods INSTALLMENT PAYMENT PLAN Terms: $10,000, 5-year loan, at 8% interest, with a 60-day interest penalty for early repayment Initial Balance$10,000.00 Monthly Payment$202.76 Current Loan Balance (at payoff after 1 year) $8,305.60 60-Day Interest Penalty$110.74 Balance to Be Paid$8,416.34

11. Slide 11 Types of Loans Installment loans Personal loans Secured loans –Car loans –Mortgages –Amortization 8-2 Consumer Loans Many people who buy houses finance the purchase with a mortgage loan.

12. Slide 12 Types of Loans Student loans –Debt used to finance education costs –Available from the U.S. government and private lenders 8-2 Consumer Loans Information about student loans is available online. Source: U.S. Department of Education, Federal Student Aid, http://www.ed.gov/offices/OSFAP/DirectLoan/index.html (accessed June 5, 2006).

13. Slide 13 Lease/Rent-to-Own The renter uses and pays rent on an item After a set number of payments, the renter owns the item Advantages –Low or no down payment –Try before you buy Disadvantages –Total price is much higher than simply buying –No payments are refunded if the item is returned 8-2 Consumer Loans

14. Slide 14 Focus on... Unused Credit Unused credit represents potential for debt Having some credit available is useful A large amount of unused credit may reduce your chances of getting a loan 8-2 Consumer Loans

15. Slide 15 Success Skills Building a Positive Reputation Reputation means the opinion others have of you People may form opinions about you based on your reputation Your reputation may affect whether you can get good recommendations from former teachers or employers 8-2 Consumer Loans

16. Slide 16 Using Credit Wisely Consider the economy –Growing economy –Slowing economy Study credit offers –Interest rates –Grace period –Method of computing interest –Fees 8-3 Credit Tips

17. Slide 17 Reduce and Avoid Costs Keep the number of credit cards and accounts you have to a minimum Comparison-shop when getting a loan Consider financing and special deals arranged by the seller Use credit to take advantage of sale prices Time your purchases with the credit billing cycle Look for cash rebates and rewards 8-3 Credit Tips

18. Slide 18 Technology Corner Applying for a Loan Online Applications for loans are submitted online Answers are received quickly Deal only with lenders you know Read the contract before signing 8-3 Credit Tips

19. Slide 19 Ethics Unethical Loan Practices Are often used to take advantage of people with poor credit ratings Examples –Loan sharks –Advance-fee loan scams –Equity stripping 8-3 Credit Tips