Consumer Credit Chapter 4
Live withinyourincome, even if you have to borrow money to do so. - Josh Billings
The use of creditcards: • There are almost a billion MasterCard and Visa credit and debitcards in the United States. • In 2006, Visa cardholders made more than $1,000,000,000,000 in purchases • Today’s consumer owes money, on average, to 13 differentlendinginstitutions. • More thanhalf of the United States population has at least 2 creditcards.
2 ways to make a purchase: • Buynow, paynow • Buynow, paylater • Anytimeyoupurhcasesomethingthatyou do not pay for immediately, you are usingcredit. • How isusingelectricity a form of credit? • Whatotherdailyactivitiescanbeconsideredcredit?
Buynow, paylater • Any time youpurchasesomethingthatyou do not pay for immediately - Credit • People who use credit -Debtors • Organizations or people thatextendcredit to consumers - Creditors
What are the advantages and disadvantages of using credit? Why does using credit tempt overspending?
Installment Plans • The customer pays for the merchandise over a period of time. • The customer pays part of the sellingpriceat the time of purchase(down payment) • The rest of the sellingpriceispaid in monthlyinstallments. • Customers are alsochargedinterest, alsoknown as a finance charge
Heather wants to purchase an electric guitar. The price of the guitar with tax is $2,240. If she can save $90 per month, how long will it take her to save up for the guitar? Is Heather using credit? Divide selling price by monthly savings → 25 months
Heather speaks to a salesperson who suggests she buy the guitar on an installment plan. It requires a 15% down payment. The remainder, plus an additional finance charge, is paid back on a monthly basis for the next two years. The monthly payment is $88.75. What is the finance charge? Down payment of 15% of selling price How do you find 15% of $2,240 = (0.15) x (2,240) = $336
Price = $2,240; Down payment= $336 • Makes a monthlypayment of $88.75 for 2 years • (24 months) x (88.75) • How muchdidshepay for the guitar? • Whatwas the finance charge? = $2,130 $2,130 + $336 = $2,466 $2,466 - $2,240 = $226
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Consumer Credit Chapter 4
He that goes a borrowing goes a sorrowing. Benjamin Franklin
Whatis: • Credit? • Finance Charge? • Creditor? • Debtor?
Carpet King is trying to increase sales, and it has instituted an installment plan with no interest, as lon gas the total is paid in full within six months. There is a $20 minimum monthly payment required. If you buy a carpet for $2,134 and make only the minimum payments for five months, how much will you have to pay in the sixth month? → $20 a month for 5 months = $100 → You will need to pay $2,034 in the sixth month
2. Monique buys a $4,700 air conditioning system using an installment plan that requires 15% down. How much is the down payment? → What is 15% of $4,700? = (0.15) x (4,700) = $705 How much will Monique have left to pay? = 4,700 - 705 = $3,995
3. Craig wants to purchase a boat that costs $1,420. He signs an installment agreement requiring a 20% down payment. He currently has $250 saved. Does he have enough? → What is 20% of $1,420? = (0.20) x (1,420) = $284 Does he have enough? Nope
4. Jean bought a $1,980 snow thrower on the installment plan. The agreement included a 10% down payment and 18 monthly payments of $116 each. a) How much is the down payment? = (0.10) x (1,980) = $198 b) What is the total amount of the monthly payments? = ($116) x (18 months) = $2,088 c) How much did Jean pay for the snow thrower? = $198 + $2,088 = $2,286
5. Linda bought a washer and dryer for y dollars. She signed an installment agreement requiring a 15% down payment and monthly payment of x dollars for one year. a) How much is the down payment? = (0.15) (y) = 0.15y b) How many monthly payments? 12 c) What is the total amount of monthly payments? = (12) (x) = 12x c) How much did Linda pay for the washer & dryer? = 0.15y + 12x
5. How much is the finance charge? = Amount paid – price of purchase = 0.15y + 12x - y
6. Zeke bought a $2,300 bobsled on the installment plan. He made a $450 down payment, and he has to make monthly payments of $93.50 for the next two years. How much interest will he pay? Down Payment: $450 Monthly payment amount: (93.50) (24) = $2,244 Total amount paid: $450 + $2,244 = $2,694 Interest: $2,694 - $2,300 = $394
The Whittendale family purchases a new refrigerator on a no-interest-for-one-year plan. The cost is $1,385. There is no down payment. If they make a monthly payment of x dollars until the last month, express their last month’s payment algebraically. Down Payment: $0 Monthly payment amount: (11) (x) = 11x Total amount paid: 11x Last Payment: $1,385 – 11x
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