10-3 (pages 332 – 339) Sources of Consumer Credit

2. 10-3 (pages 332 – 339)Sources of Consumer Credit 2 Basic forms of borrowing:

3. Types of Credit • Secured loan-- The property pledged is called You agree to give up this property if you fail to make your payments. Installment loan— (Example—a monthly payment for a car loan) Called closed-end credit—money borrowed for a particular amount and

4. Types of Credit (continued) • Unsecured loan—loan not backed by any Usually charge Are hard to obtain. for the lender.

5. Where do you get credit? 1. • Savings and loan associations Shop around for a loan—interest rates differ from one institution to another. Look for “special deals” offered periodically

6. Other places to get credit: Finance Companies—lend to people with Charge high interest rates Life Insurance Companies—may be able to use your life insurance policy as But, if you don’t pay back the loan by the time you die, your policy benefits are

7. Other places to get credit (continued) Credit Card Cash Advances—You can borrow against your High interest rate (often up to 24%) and a fee of 3% of the cash advance. Pawnbrokers—You turn over personal property (TV, jewelry, antiques, etc.) to get a loan. If you pay back the loan, you get your property back. If not,

8. Other places to get credit (continued) Rent-to-own companies—You make payments for an item usually on a weekly basis. Once all the payment are made, you own the product. Interest rates can be as high as

9. Types Credit Cards 1.Regular charge accounts—you must pay your each month in full within a specified amount of time.

10. Types of Credit Cards (continued) • Revolving Charge Accounts—Allows you to carry a balance from one month to the next. You only must pay a each month, and can let the rest “revolve” into the next month. Can take months or even years to pay off. Or, pay the entire balance each month by the due date and pay

11. Where do you get a credit card? Banks Stores Gasoline Companies Large companies— VISA,

12. What does a Credit Card Cost? Some charge ($15 – 100) DON’T GET THIS TYPE—LOOK FOR FREE CARDS Interest—to be paid on unpaid balances. Most interest rates are Penalties—charged if you go over your

13. Grace Period Is the time between the billing date and the payment due date when (usually 15 – 25 days)

14. Control Credit Card Costs Chose a loan instead of a credit card for Don’t pay —a large part of this is interest, so you don’t reduce your debt much Choose the

15. BESMART WITH YOUR MONEY-- DON’T FORGET THE LATTE FACTOR!