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Credit

Credit. Learning Goals. Students will analyze the role and importance of credit in personal and business finance. Key Terms. Credit A privilege of using someone else’s money for a period of time Credit Worthiness Borrower’s ability to assume and pay back credit (debt) Collateral

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Credit

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  1. Credit

  2. Learning Goals • Students will analyze the role and importance of credit in personal and business finance.

  3. Key Terms • Credit • A privilege of using someone else’s money for a period of time • Credit Worthiness • Borrower’s ability to assume and pay back credit (debt) • Collateral • Offers your house, car etc. to reduce risk of loan • Can usually get you a lower rate on a loan • Creditor • Any person that grants a loan or sells on credit • Debtor • Any person/business that buys on a credit or receives a loan

  4. Key Ideas • Credit Rating • Indication of the level of risk that consumers business or government will pose if credit is granted to them • Measure of worthiness • Shared by businesses • Credit Crisis • Being consistently unable to pay off credit cards • Using cash advances on everyday expenses • Not knowing how much debt you have • Seeming to always be in debt

  5. Advantages of Credit • Can make major purchases • Overcome cash-flow shortages • Company cards • Widely accepted as substitute for cash Can you think of any other advantages?

  6. Disadvantages of Credit • Increased costs • Defaulting on a loan • Overbuy • Financial difficulties Can you think of any other disadvantages?

  7. Credit Cards

  8. Installment Sales Credit • Is a credit plan that requires a purchaser to make a down payment and fixed regular payments with finance charges added to the purchase price • When buying expensive purchases such as a car • Bigger down payment is better • Term loan – a form of installment credit in which the borrower agrees to make fixed monthly payments over a set period of time (term) • Lease – similar but the borrower doesn’t actually own the asset it’s just a long-term rental • Demand loan – lender can require full payment at any point after the loan has been given

  9. 3Cs of Credit • Character • Borrower’s willingness to repay a loan, trustworthiness and reliability • “Will they repay their debt?” • Have you used credit before? • Do you pay your bills on time? • Do you have a good credit report? • Can you provide character references? • How long have you lived at your present address? • How long have you been at your present job?

  10. 3Cs of Credit • Capacity • Ability to make payments on time and pay a debt when it’s due • “Can they repay their debt?” • Do you have a steady job? If so, what is your salary? • How many other loan payments do you have? • What are your current living expenses? • What are your current debts? • How many dependents do you have?

  11. 3Cs of Credit • Capital • Value of borrower’s assets • “What do they own that could be given up if they cannot repay their debt?” • What property do you own that can secure the loan? • Do you have a savings account? • Do you have investments to use as collateral?

  12. To Do: • Complete the Credit – lesson 6 worksheet in the student common drive

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