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Credit

Consumer Credit Chapter 15, Section 1. Credit. Objectives. Explain the meaning of consumer credit Differentiate between closed-end credit and open-end credit. Definitions. Credit - The arrangement by which businesses or individuals can purchase a good or service now and pay for it later.

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Credit

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  1. Consumer Credit Chapter 15, Section 1 Credit

  2. Objectives • Explain the meaning of consumer credit • Differentiate between closed-end credit and open-end credit

  3. Definitions • Credit - The arrangement by which businesses or individuals can purchase a good or service now and pay for it later. • Using credit increases the amount of money you can spend now, but the cost of credit decreases the amount of money you will have in the future. • Creditor – An entity that lends money

  4. Sources of Credit • Commercial Banks • Savings and Loan Associations • Credit Unions • Sales Finance Companies • Businesses

  5. Types of Credit • Closed-End Credit • A one time loan that you will pay back over a specific period of time in payments of equal amounts • Open-End Credit • A loan with a certain limit on the amount of money you can borrow for a variety of goods and services

  6. Closed-End Credit Types • Installment Sales Credit • A loan that allows you to receive merchandise • Ex: Home Mortgage, Car Loan • Installment Cash Credit • Direct loan for money • Ex: Payday loan • Single Lump-sum Credit • A loan that must be repaid in total on a specific day • Ex: Furniture or appliance loans – “Don’t Pay for 90 Days”

  7. Open-End Credit • Line of Credit • The Maximum amount of money that a creditor will allow a credit user to borrow. • Credit Card • A card that a credit user can use to purchase items and the credit user pays the balance to the creditor monthly • Normally, the user does not have to pay the full balance monthly because the credit company offers a grace period, although a finance charge may be incurred. • Revolving credit Amounts • A prearranged loan for a specific amount that you can use by writing a special check

  8. Other types of Spending Cards • Debit Card – A card similar to a credit card but does not use credit. Instead the purchase amount is deducted from the users personal bank account. • Cobranding – The linkage of a credit card with a business rewards system where the customer gets “reward points” for using the card. • Smart Card – A card with a computer chip that stores useful information for a user’s personal account with a company. • Stored Value Card – Also known as a gift card- a prepaid card that is used similar to a credit or debit card. • Travel and Entertainment Card – Similar to a credit card, but the balance must be paid in full each month.

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