1. Chapter 4
Going into debt

2. Section 1 Americans and Credit
Credit- The receiving of money either directly or indirectly to buy goods and services today with the promise to pay for them in the future.
Principal- The amount borrowed.
Interest- Amount you pay for the use of some-one else’s money.

3. Installment debt Consumer debt almost doubled between 1987-1997.
Installment debt- Pay back with equal payments over a certain period of time.
Used for durables goods, manufactured items that people use for long periods of time.
Mortgage- Installment debt owed on real property. Largest form of installment debt.

4. Why people use credit
1. Immediate need, you can not always put off until later to make a purchase.
2. Spread payments
The longer the loan the less you pay monthly.
The longer the loan the more you pay in interest.

5. Deciding to use credit 1. do I really need this item?
2. If I pay cash, what will I be giving up that I could buy with this money?
3. If I borrow or use credit, will the satisfaction I get from the item I buy be greater than the interest I pay?
4. Have I done comparison shopping?
5. Can I afford to borrow or use credit now?

6. Section 2: Sources of Loans and Credit
1. Commercial Banks
2. Savings and Loan Associations
3. Savings Banks
4. Credit Unions
5. Finance companies and Consumer Finance Companies

7. Charge Accounts
1. Regular Charge Accounts, or 30-day charge. Credit limit low, paid off each month.
2. Revolving Charge Accounts, make additional charges even if the amount is not paid off.
3. Installment Charge Accounts, paid through equal payments.

8. Credit and Debit Cards
Credit Cards, allow you to make purchases without using cash. Visa and Master card are the two biggest.
Debit Card, make purchases without using cash but the amount is automatically taken out of your account.

9. Finance Charges and Annual Percentage Rates
Finance charges, Interest plus any other charges connected with credit.
Annual Percentage Rates APR, the cost of credit expressed as a yearly percentage.

10. Section 3; Applying for Credit
Credit Bureau, private business checks your credit.
Credit Check, investigating your credit.
Credit Rating
Past history
Capacity to pay
Character
Collateral

11. Applying for Credit Secured loan, backed with collateral
Unsecured loan, based on reputation and promise to repay
Responsibility as a borrower
Pay on time
Keep records
Notify of loss of card

12. Section 4: Government Regulation of Credit
Truth in Lending Act (1968)- information on costs and conditions of borrowing.
The Equal Credit Opportunity Act (1974)- can not deny credit based on race, religion, national origin, gender, marital status or age.
State Usury Laws- set limits on interest charged.

13. Bankruptcy Congress sets bankruptcy laws
Certain bills still must be paid, taxes
10 years on your record.
2005 amendments make it more difficult to declare bankruptcy.