1. CH 18 Sec 1 Credit Fundamentals

2. Using Credit × Credit- the privilege of using someone else’s money for a period of time × Debtor- anyone who buys on credit or receives a loan × Creditor- one who sells on credit or makes a loan × The privilege is based on the belief that the person receiving the credit will honor a promise to repay the amount owed.

3. Types of Credit × Trade Credit- when a company receives goods from a supplier and pays for them later. × Loan Credit- when you borrow money to use for a specific purpose × Installments- when a borrower pays back in specific amounts × Sales Credit- charge a purchase at the same time you buy the good or service

4. Accounts  Charge Accounts- a contract between the firm offering the account and the customer  Regular account- the buyer must make a full payment for the amount owed usually 25 to 30 days.  Budget accounts- the c8ustomer to make payments of a fixed amount over several months  Revolving accounts- may charge purchases at any time, but part of the debt must be paid every month. Credit limit- maximum amount that may be owed at one time Finance charge- (only added if the total amount is not paid) the total dollar cost of credit

5. Credit Cards × Bank cards- MasterCard and visa are best known. × Charge Cards- once called travel and entertainment cards. Need a membership to be a owner × Affinity Cards- Allow organizations, charities, and sport teams to receive a small percentage of credit sales. × Retail store card- credit cards from their store

6. Installment Credit  Is a contract issued by the seller that require periodic payments at specific times Down payment- payment of part of the purchase Repossess- take back Differs from using credit cards

7. Loans  Installment loans- when you agree to make monthly payments in specific amounts over a period of time  Single-payment loan- is when you don’t pay anything back until the end of the loan period Promissory note- written promise to repay based on excellent credit history – Principal: amount that is promised – Time: days or months from the date written until it should be paid – Date of maturity: date the note is due –Payee: The one to whom the note is payable – Interest rate- rate paid for the use of the money – Maker- one who promises to make the payment

8. More Loans × Collateral- Property that is used as security × Secured loan- when you give security to be held by the lender until the loan is paid back × Cosigner- someone who signs for you because they have better credit than you Loans are alternatives to using credit and installment cards.

9. Benefits of Credit × Convenience: Shop w/o carrying much cash × Immediate Possession: buying expensive necessities now an paying for the later × Savings: credit customers can get more sales then noncredit customers × Credit Rating: Reputation for paying bills on time × Useful for Emergencies: can help in unexpected situations

10. Credit Concerns × Overbuying: buying something that is more expensive then you can afford × Careless buying: not to waiting for a better prices on an item you want × Higher prices: If a store usually uses cash rather than credit there could be collection costs × Overuse of credit: Total amount can become a problem

11. Assessment 1. Large purchases( such and appliances and cars) are commonly bought using… a. bank credit card b. installment credit c.Charge account d. trade credit 2. Signing a promissory note occur when using… a.Credit card b.Charge account c.Loan d.trade credit 3. Which of the following is an advantage of using credit? a.Overbuying b.Convenience c.Higher prices` d.Lower credit rating

12. Assessment 1. Large purchases( such and appliances and cars) are commonly bought using… a. bank credit card b. installment credit c.Charge account d. trade credit 2. Signing a promissory note occur when using… a.Credit card b.Charge account c.Loan d.trade credit 3. Which of the following is an advantage of using credit? a.Overbuying b.Convenience c.Higher prices d.Lower credit rating