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Consumer Credit

18. Consumer Credit. 18-1 Credit Fundamentals 18-2 Cost of Credit 18-3 Credit Application and Documents 18-4 Protection of Credit Rights. LESSON 18-1 Credit Fundamentals. Goals Identify the types of consumer credit. Describe the benefits of using credit.

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Consumer Credit

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  1. 18 Consumer Credit 18-1 Credit Fundamentals 18-2 Cost of Credit 18-3 Credit Application and Documents 18-4 Protection of Credit Rights

  2. LESSON 18-1Credit Fundamentals Goals • Identify the types of consumer credit. • Describe the benefits of using credit. • Explain some disadvantages of using credit. Chapter 18

  3. credit finance charge down payment installment loan promissory note collateral cosigner credit rating Key Terms Chapter 18

  4. USING CREDIT • Credit • Debtor • Creditor Chapter 18

  5. TYPES OF CREDIT • Trade credit • Loan credit • Installments • Sales credit Chapter 18

  6. CHARGE ACCOUNTS • Regular accounts • Budget accounts • Revolving accounts • Credit limit • Payments • Finance charge Chapter 18

  7. CREDIT CARDS • Bank cards • Travel and entertainment cards • Oil company cards • Retail store cards Chapter 18

  8. FEATURES OF INSTALLMENT CREDIT • Signing a sales contract that shows the terms of the purchase • Receiving the purchased item at the time of the sale • Making a down payment • Paying a finance charge on the amount owed • Making regular payments at stated times Chapter 18

  9. CONSUMER LOANS • Installment loan • Single payment loan • Promissory note • Collateral • Secured loan • Cosigner Chapter 18

  10. >> C H E C K P O I N T What are the major types of consumer credit? Chapter 18

  11. BENEFITS OF CREDIT • Convenience • Immediate possession • Savings • Credit rating • Useful for emergencies Chapter 18

  12. >> C H E C K P O I N T What are the main advantages of consumer credit? Chapter 18

  13. CREDIT CONCERNS • Overbuying • Careless buying • Higher prices • Overuse of credit Chapter 18

  14. QUESTIONS TO ASK • How will you benefit from this use of credit? • Is this the best buy you can make or should you shop around? • What will be the total cost of your purchase, including the finance charges? • What would you save if you paid cash? • Will the payments be too high for your income? Chapter 18

  15. >> C H E C K P O I N T What are potential drawbacks of buying on credit? Chapter 18

  16. LESSON 18-2Cost of Credit Goals • Calculate interest in consumer credit situations. • Explain finance charges when using credit. Chapter 18

  17. Key Terms • interest • annual percentage rate (APR) Chapter 18

  18. FINDING INTEREST Chapter 18

  19. SIMPLE INTEREST Chapter 18

  20. SIMPLE INTEREST EXAMPLES Chapter 18

  21. MATURITY DATES • Maturity date is the date on which a loan must be repaid. • Time stated in months • One month loan made on January 15 is due on February 15 • Two month loan made on January 15 is due on March 15 • Time stated in days • 90 day loan made on March 4 is due on June 2 Chapter 18

  22. 90-DAY LOAN EXAMPLE • Determine maturity date for a 90-day loan made on March 4 • Find the number of days remaining in March • Add days until you reach 90 days • Due date is June 2 March 27 days (31–4) April 30 days May 31 days June 2 days Total 90 days Chapter 18

  23. INSTALLMENT INTEREST • Decreasing loan payments • Level loan payments Chapter 18

  24. DECREASING LOAN PAYMENTS Chapter 18

  25. LEVEL LOAN PAYMENTS Chapter 18

  26. >> C H E C K P O I N T What three things are necessary to calculate interest? Chapter 18

  27. FINANCE CHARGES • Annual percentage rate (APR) • Total dollar charges • Compare credit costs Chapter 18

  28. >> C H E C K P O I N T What does APR represent? Chapter 18

  29. LESSON 18-3Credit Application and Documents Goals • Explain the credit application process. • Describe the activities of a credit bureau. • Discuss commonly used credit documents. Chapter 18

  30. Key Terms • credit application • credit bureau • statement of account Chapter 18

  31. CREDIT APPLICATION PROCESS • The three Cs of credit • Character • Capacity • Capital • Credit applications • Documenting credit data • Actions to establish credit Chapter 18

  32. >> C H E C K P O I N T What are the three Cs of credit? Chapter 18

  33. CREDIT BUREAU • Gathers information on credit users • Sells information to businesses offering credit, such as banks, finance companies, and retail stores • Creates a credit report showing debts owed, how often credit is used, and whether debts are paid on time Chapter 18

  34. >> C H E C K P O I N T What is the main purpose of a credit bureau? Chapter 18

  35. CREDIT DOCUMENTS • Credit contracts • Statement of account • Accuracy of records • Avoiding fraud Chapter 18

  36. >> C H E C K P O I N T What are the main items reported on a statement of account? Chapter 18

  37. LESSON 18-4Protection of Credit Rights Goals • Identify credit application regulations. • Explain credit use regulations. • Discuss credit problems and available assistance. Chapter 18

  38. Key Terms • credit counselor • bankruptcy Chapter 18

  39. CREDIT APPLICATION REGULATIONS • Truth-in-Lending Law of 1968 • Equal Credit Opportunity Act Chapter 18

  40. >> C H E C K P O I N T How does the Truth-in-Lending Law assist consumers? Chapter 18

  41. CREDIT USE REGULATIONS • Fair Credit Billing Act • Fair Credit Reporting Act • Consumer Credit Reporting Reform Act • Fair Debt Collections Act Chapter 18

  42. >> C H E C K P O I N T What is the purpose of the Fair Credit Reporting Act? Chapter 18

  43. CREDIT PROBLEMS AND ASSISTANCE • Credit Counseling • Bankruptcy Chapter 18

  44. >> C H E C K P O I N T What actions can a person take when facing credit problems? Chapter 18

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