Credit In America

1. Credit In America Pay Down Those Cards

2. Advantages of Credit

3. #1 Provide Emergency Funds • Line of Credit – preestablished amount that can be borrowed on demand

4. #2 Budgeting and Increased Buying Power • Purchase major items • Paying over time establishes good credit rating

5. #3 Convenience • Get better service • Advance notice of sales/special offers • Deferred billling – purchases not billed until later

6. #4 Proof of Purchase

7. #5 Safer than Cash • If credit card is lost or stolen, owner is only responsible for the first $50 of loss if reported.

8. Disadvantages of Credit

9. Blowing Your Budget • Credit cards encourage people to spend money that they don't have

10. High Interest Rates and Increased Debt • Rates can change at any time • Teaser rates don’t last very long

11. Credit Purchases Cost More Than Cash Purchases • Only if the balance is not paid off each month

12. Vocabulary

13. Balance Transfer • Moving an unpaid credit card debt from one issuer to another • Card issuers sometimes offer teaser rates to encourage balance transfers

14. Credit Card • Allow you to carry over portions of your balance from month to month. • If you do not pay your balance in full, you are assessed finance charges.

15. Principal • Actual dollar amount of the purchases you made • Also the balance that remains on your loan or credit card account.

16. Prime Rate • What banks charge their best commercial customers for loans. • Changes often • Some financial institutions use to set the APR for credit cards.

17. Open Ended Credit • Limit is placed on how much customer can borrow during a given period. • Partial or entire balance paid within 30 days or over time. • No finance charge if balance is paid off • Ex. Credit cards

18. Open 30-day accounts • Full balance must be paid each month • Widely accepted • Have higher credit limits • Instant purchasing power • Ex. American Express

19. Revolving credit account • Option of paying in full each month or making minimum/partial payment • Example: credit cards—Visa, MasterCard, Bergners, etc.

20. Installment Credit • Debt is divided into equal amounts for repayment • Closed-ended credit • Repaid in fixed amounts • Item purchased is collateral

21. Installment Purchase Agreement • Contract defining the repayment of the purchase price, plus finance charges in equal regular payments

22. APR • Annual Percentage Rate • Cost of credit expressed as a YEARLY rate. • Can change because of missed payments, no activity, etc.

23. Introductory/Teaser Rate • Low rate for financing • Offered for a limited time • May only apply to certain aspects of credit, for example balance transfers or new purchases.

24. Co-Signer • Person who pledges to repay the debt if borrower fails to do so.

25. Rates… • Fixed: APR doesn’t change • Variable: may change over time because of the prime lending rate.

26. Service Credit • Having a service performed and paying for it later • Example: telephone/utility, doctors, lawyers, dentists, repair shops

27. Layaway Plans • Offered by retail businesses • Item is received once all payments are made. • Down payment • Service fee • If you change your mind about layaway item, portion of payment or all is kept

28. Sources of Credit

29. Retail Stores • Department stores, drugstores, clothing stores • Customer shops where they have credit

30. Commercial Banks and Credit Unions • Used for purchasing car or home, general cash loans • Offer credit cards – Bank credit cards • Credit unions offer loans to members with only lower interest rates

31. Finance Company • Small loan companies • Charges higher interest rates • Willing to take risks • Easier to get loan from finance companies

32. 2 types of Finance Companies • Consumer Finance • General purpose company • Loans for expensive items • Sales Finance Company • Authorized representative loans • Example: GMAC—finances General Motors auto dealers

33. Other sources • Pawnshops • Private lenders • Life insurance policies