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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. 18

  3. Credit-privilege of using someone else’s money finance charge-total dollar cost of credit. down payment-payment part of the purchase price. installment loan-monthly payments over a period of time. promissory note-written promise to repay. Collateral-property used as security. Cosigner-responsible for payment of a note if the payee does not pay as promised. credit rating- reputation for paying bills. Key Terms 18

  4. USING CREDIT • Credit – privilege of using someone’s money. • Debtor-anyone who buys on credit. • Creditor-anyone who sells on credit. 18

  5. TYPES OF CREDIT • Trade credit • Receives goods from a supplier and pay for them later. • Loan credit • Borrow money for a special purchase. • A written contract. • Installments • Specific amounts of repayment. • Sales credit • Charge a purchase. 18

  6. CHARGE ACCOUNTS • Regular accounts • Full payment due within a period. • 25 to 30 days • Plumbing, dentist, doctor bills. • Budget accounts • Fixed amount of payment. • Utility budget plan. • Revolving accounts- only part of the debt must be paid each month. • Credit limit- maximum amount charged. • Payments- required once a month. • Finance charge-cost of credit 18

  7. CREDIT CARDS • Bank cards • Mastercard and visa • Travel and entertainment cards • American express • Oil company cards • Conoco • Retail store cards • Best Buy 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 18

  9. CONSUMER LOANS • Installment loan • Single payment loan • Promissory note • Collateral • Secured loan • Uses collateral as security. • Cosigner 18

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

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

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

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

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

  16. Assignment • Pg. 323, 1-9 18

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

  18. Key Terms • Interest- the cost of using someone else’s money • annual percentage rate (APR)- the percentage costs of credit on a yearly basis. 18

  19. FINDING INTEREST 18

  20. SIMPLE INTEREST 18

  21. SIMPLE INTEREST EXAMPLES 18

  22. 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 18

  23. 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 18

  24. INSTALLMENT INTEREST • Decreasing loan payments • Level loan payments 18

  25. DECREASING LOAN PAYMENTS 18

  26. LEVEL LOAN PAYMENTS 18

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

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

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

  30. Assignment • Pg. 461, 1-3. • Maturity date quiz. 18

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

  32. Key Terms • credit application- a from on which you provide information for credit. • credit bureau- a company that gathers information on credit users. • statement of account- a record of the transactions completed during the billing period. 18

  33. CREDIT APPLICATION PROCESS • The three Cs of credit • Character- honesty • Capacity- ability to pay your debt.(income) • Capital- borrower’s possessions • Credit applications • References • Able to provide information about your creditworthiness. • Documenting credit data • Actions to establish credit 18

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

  35. 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 18

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

  37. CREDIT DOCUMENTS • Credit contracts • “KWYS”- Know what your signing. • Statement of account • Monthly Statement • Pg. 467 • Accuracy of records • Many errors are simply honest mistakes. • Avoiding fraud • Check you statements often. 18

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

  39. Assignment • Pg. 468, 1-2 • Read Pgs. 469-473 18

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

  41. Key Terms • credit counselor-discusses and suggests actions to take to reduce spending and eliminate credit difficulties. • Bankruptcy-the legal process of reducing or eliminating an amount owed • Requires legal assistance 18

  42. CREDIT APPLICATION REGULATIONS • Truth-in-Lending Law of 1968- • Requires APR • Protection against unauthorized credit card use • $50 • Equal Credit Opportunity Act- • Cannot deny because of age, race, sex, or marital status. 18

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

  44. CREDIT USE REGULATIONS • Fair Credit Billing Act • Prompt correction of billing mistakes • Must notify the creditor within 60 days. • Fair Credit Reporting Act • Gives consumers the right to know what credit bureaus are giving to potential creditors, employers, and insurers • Consumer Credit Reporting Reform Act • Places the proof for accurate credit information on the credit reporting agency. • Fair Debt Collections Act • Obtains money that is past due • Fair treament 18

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

  46. CREDIT PROBLEMS AND ASSISTANCE • Credit Counseling • Bankruptcy 18

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