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## Consumer Credit

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**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**Class Work**• Page 178, 2-6**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**Class Work**• Page 178, 7 - 11