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Understanding Credit: Sources and Terms

This lesson covers the various sources of credit, such as institutional credit, charge accounts, credit cards, and installment plans. Students will learn about terms such as collateral, cosigner, and revolving credit. An overview of short-term, intermediate-term, and real estate financing will also be provided.

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Understanding Credit: Sources and Terms

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  1. Determining Sources of Credit

  2. Next Generation Science/Common Core Standards Addressed! • CCSS.ELA Literacy.RST.11‐12.2 Determine the central ideas or conclusions of a text; summarize complex concepts, processes, or information presented in a text by paraphrasing them in simpler but still accurate terms. • CCSS.ELA Literacy. RST.9‐10.2 Determine the central ideas or conclusions of a text; trace the text’s explanation or depiction of a complex process, phenomenon, or concept; provide an accurate summary of the text.

  3. Agriculture, Food and Natural Resource Standards Addressed! • CRP.09.02. Implement personal management skills to function effectively and efficiently in the workplace (e.g., time management, planning, prioritizing, etc.). • CRP.09.02.01.c. Evaluate opportunities to apply personal management skills into daily tasks and responsibilities.

  4. Bell Work! STUDENT LEARNING OBJECTIVES • Explain the use of institutional credit. • Understand the use of charge accounts. • Understand the use of credit cards. • Understand the use of installment plans.

  5. Terms • Average daily balance • Charge account • Collateral • Cosigner • Credit card • Installment plan

  6. Terms Continued • Institutional credit • Intermediate-term credit • Real estate financing • Revolving credit account • Short-term credit

  7. Interest Approach • Make a list of items that can be purchased using 90 days, same as cash. • Why would a business would offer this arrangement? • What kind of problems can occur for the consumer?

  8. How can institutional credit be used? • Institutional credit is obtained from organizations in the business of loaning money.

  9. Credit • Short-term credit - usually paid back within one year. • Used to purchase small items.

  10. Intermediate-term credit • Intermediate-term credit - paid back in one to five years. • Used to purchase a car for example or farm equipment.

  11. Real estate financing • Real estate financing usually ranges from five to thirty years. • Used to purchase land, commercial buildings or houses.

  12. Collateral • Collateral are the assets that are pledged to secure a loan. • In the event that the loan goes unpaid, The collateral may be sold to pay the loan.

  13. Cosigner • If collateral is not available a cosigner, a person who shares responsibility for the loan if the borrower is unable to pay. • Most commonly a parent or relative.

  14. Charge Account • A charge account is extended by retailers to those who purchase products from them. • This makes purchasing the product more convenient for the consumer or business employees. • An example is having a charge account at the local gas station. • Usually interest is waived for a period of time. • This type of credit may carry extremely high interest for unpaid balances. Normally paid off each month.

  15. Credit Cards • A credit card is a plastic card with owner information that is used to conduct a credit transaction. • Many department stores and financial institutions offer credit cards. • The credit/debit card is now the most common means of business transactions.

  16. Revolving Credit Account • Cardholder can pay the full amount or a minimum monthly payment. • Finance charges begin on the unpaid balance. • Cardholder has a set credit limit. • Finance charges are usually charged on the average daily balance. • Finance charges are generally very high compared to other credit sources.

  17. Installment plans • Installment plans are a way of purchasing goods. • The buyer makes regular payments while taking immediate possession of the good. • The buyer does not own the product until it is paid for in full. • For example – a car, shop equipment, farm implements.

  18. Installment Plans Continued • Usually a down payment is required. • Interest is usually figured into the payments. • Some retailers offer “90 same as cash” incentives where no interest is due if the total cost is paid within 90 days.

  19. Review/Summary • Explain the use of institutional credit. • How are charge accounts used? • How are credit cards used? • What is the purpose of installment plans?

  20. The End!

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