Introduction to Business

1. Introduction to Business Ch. 25: The Uses of Credit

2. Types of Charge Accounts • Regular Account – Seller or provider expect payment in full within a specified period of time • Billing period is usually 25-30 days • Used for everyday needs and small purchases • Ex – Doctors, plumber, or any type of service industry

3. Types of Charge Accounts • Budget Account – Payment of a certain fixed amount be made over several months • Ex. – 90 day payment, in which you make 3 = payments • Utility companies

4. Types of Charge Accounts • Revolving Account – Purchases can be charged at any time but only part of the debt must be paid each month • Make a minimum month payment • Finance charges will be added to total amount owed not paid • Varies from 0% for the first year up to 25% • No finance charge if you make full payment within 25 days

5. Teenage Charge Accounts • Under contract law, minors are not responsible and cannot be held liable for their personal debt. • Businesses are not willing to open charge accounts in a teenager’s name • May get account with a co-signer (adult agreeing to make payment on any balance due that the teenagers does to make)

6. Credit Card Usage • Bank Cards – Two most popular are: VISA and MasterCard • May be an annual fee • Businesses are paid for the sales amount minus a service fee (usually 4-6%) • Why do customers like Bank Card • They are accepted everywhere • Receive one monthly bill rather than many bills from the various businesses

7. Credit Card Usage • Travel and Entertainment Card • Example: Diner Club and American Express • They do charge a higher yearly fee • Expected to pay full amount each month

8. Credit Card Usage • Oil Company Cards • Not as common because it costs them to much • Retail Store Cards • Stores offer their own credit cards to customers • Can only be used in the store offering the card

9. Installment Sales Credit • This is different then using credit cards, you have to complete an application for the large item that you are purchasing • Contract issued by the seller that requires periodic payments to be made at times specified in the agreement • Payments are the same each month • Finance charges are added to the cost of the item purchased

10. Installment Sales Credit • Special Features of installment sales • Sign a written agreement (sales contract) that shows the terms of the purchase, such as payment periods and finance charges • Receive and own the goods at the time of purchase • Seller has the right to repossess (take them back) them if payments are not made according to the agreement

11. Installment Sales Credit • Special Features of installment sales • Make a down payment (payment of part of the purchase price) • Pay a finance charge on the amount owed • Make regular payments at stated times, usually monthly

12. Consumer Loans • Installment Loan • One in which you agree to make monthly payments in specific amounts over time • Amount borrowed plus finance charges • Single-Payment Loan • You do not pay anything until the end of the loan period, usually 60 or 90 days. • Repay full amount plus finance charges

13. Consumer Loans • Process • Sign a Promissory Note – Written promise to repay based on a debtor’s excellent credit rating • Payee – The one to whom the note is payable • Maker – The one who promises to make payment • Date of Maturity – Date on which note is due • Time – the days or months from the date of the note until it should be repaid • Principal – Face value of the note, the amount that is promised to be paid

14. Consumer Loans • Process • Collateral – Property used to secure the loan. • What you will give to the lender to sell to get back the amount of the loan in the event you do not repay it. • Secured Loan • Cosigner – Person responsible for payment of the note if you do not pay as promised

15. Credit Contracts • Know what you are signing (KWYS) • How much are the finance charges • Must be clearly stated in your contract • Does the contract include the cost of services you may need, such as repairs, or is there a separate contract. • Does the contract have add-on features so that you can later buy other items and have them added to the balance that you owe

16. Credit Contracts • Know what you are signing (KWYS) • If you pay the contract in full before its ending date, how much of the finance charge will you get back? • If you pay the contract within 60 or 90 days, will there be any finance charge or will it be as if you had paid cash

17. Credit Contracts • Know what you are signing (KWYS) • Is the contract you are asked to sign completely filled in? Do not sign it if there are any blanks. • It is proper to draw a line through blank spaces before you sign the contract • Under what conditions can the seller repossess the merchandise if you do not pay on time