Download presentation
Presentation is loading. Please wait.
Published byBarnard Waters Modified over 9 years ago
1
Chapter 4
2
What is Credit? ◦ Principal + Interest Installment Debt ◦ Equal Payments ◦ Durable Goods ◦ Longer Term = Lower Payment BUT ◦ More Interest ◦ Mortgage Longest Terms
3
Do not want to wait Spread payments over the Service Life of item Is Satisfaction Greater than Interest paid? Checklist for Using Credit for Purchases ◦ Do I really require the item? Can I postpone purchasing? ◦ If I pay cash, what will I be giving up that I could buy with these funds? ◦ If I borrow with the satisfaction I get from using the item now outweigh the interest paid? ◦ Have I done comparison shopping for credit? ◦ Can I afford to use credit now?
4
Commercial Banks ◦ Offer widest variety of services Savings and Loan Associations ◦ Accepts deposits and lend funds Interest rates usually slightly lower than commercial Savings Banks ◦ Serve small savers ◦ Lend money for mortgages, auto and personal loans ◦ Many also offer checking and other commercial functions Credit Unions ◦ Owned and operated by members ◦ Offer savings, checking, and loans ◦ Higher interest earnings and lower interest charges Finance Companies ◦ Installment debt for stores ◦ Very High Rates ◦ Loans to people with BAD credit
5
Charge Accounts or Charge Card ◦ Buy goods from a particular company or store ◦ Regular Charge Account Set amount can be charged No interest if paid in specified amount of time Very high interest rate if unpaid on time ◦ Revolving Charge Account Able to make additional purchases (even if unpaid balance) Interest on Unpaid Balance If paid in full no interest charged ◦ Installment Charge Account Items purchased and paid through equal payments Principal and Interest paid monthly Credit Cards ◦ Access to loans at all times without having to apply ◦ Difference between Charge Cards? ◦ Difference between Debit and Credit Cards?
6
Finance Charges? ◦ Interest costs + any other costs with having Credit Dollar and Cents cost of credit ◦ Computed in 4 Ways (Next Slide) Annual Percentage Rates ◦ Cost of Credit expressed in a yearly amount ◦ Also included is any non-interest cost of credit ◦ APR provides easy way to compare credit
7
Previous Balance Method Adjusted Balance Average Daily Balance Past Due Balance
8
How does a person get credit? ◦ Application ◦ Credit Bureau Private Business ◦ Credit Check Income, Current debt, personal life, repayment in past Looking for history in paying debt, capacity to pay (debt:income, length at job, unemployed), character, any collateral What determines a person’s creditworthiness? ◦ Everybody has a credit score from the credit check ◦ Higher the score better potential to get loan AnnualCreditReport.com Equifax, TransUnion, and Experian – 1 Free a year From Each Company
10
Late payments High debt-to-income ratio Having many open accounts Previous Bankruptcy ◦ Stays for 10 years Unemployment Legal Trouble Secure Loan vs. Unsecured loan ◦ Cosigner?
11
Loan is a Promise!! ◦ If you don’t repay, creditor loses $ Losses passed off to others ◦ Hurts credit rating Keep track of all charges ◦ Immediately report Fraud, Lost or Stolen Card Visit Financial Counselors for Help if Needed ◦ Consolidate Loans ◦ Pay High Interest First ◦ Pay more than Minimum Payment
12
The Truth in Lending Act (1968) ◦ Requires Lenders to keep borrowers informed of credit conditions The Equal Credit Opportunity Act (1974) ◦ Cannot deny based on race, religion, national origin, gender, marital status, or age ◦ Cannot deny because income comes from public assistance State Usury Laws ◦ Limits on amount of interest that can be charged Consumer Finance Agencies allowed higher because loans are high risk
13
THIS IS THE FINAL RESORT!!! What is Bankruptcy? How does Bankruptcy work? ◦ Bankruptcy Court ◦ Decide what debt to keep and which to give up ◦ Taxes and School Loans MUST be repaid ◦ Stays on record for 10 years ◦ Constitution allows Congress to make laws on Bankruptcy
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.