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Uses of Credit PowerPoint
 

Uses of Credit PowerPoint

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    Uses of Credit PowerPoint Uses of Credit PowerPoint Presentation Transcript

    • 8.01 Evaluate various sources of credit available to the government, business, and consumers. T008.01.01 G3 Credit
    • Who uses Credit?
      • Consumer Credit
        • Credit used by people for personal reasons.
      • Commercial Credit
        • Credit used by businesses.
      T008.01.02 G4
    • Types of Credit
      • Charge Accounts – most common type of short- term or medium-term credit.
        • Regular Charge Accounts
          • Require that you pay for purchases in full within a certain period of time.
        • Revolving Charge Accounts
          • Allows you to borrow or charge up to a certain amount of money (credit limit) and pay back a part or the entire balance each month.
        • Budget Charge Accounts
          • Allows you to pay for costly items in equal payments spread out over a period of time.
      T008.01.03 G5
    • Credit Cards
        • Single-Purpose
          • Can only be used to buy goods or services at the business that issued the card.
          • Examples: JC Penney, Sears
        • Multipurpose
          • Similar to a revolving charge account.
          • May be used at several locations.
          • Examples: Visa and Master Card
        • Travel and Entertainment
          • Similar to regular charge accounts.
          • Must be paid in full each month.
          • Example: American Express
      T008.01.04 G6
    • Banks and Other Financial Institutions
      • Single Payment Loan
        • Debtor pays off loan in one payment.
        • Promissory Note
          • Written promise to repay with interest.
      • Installment Loan
        • Repaid in regular payments.
      T008.01.05 G7
    • Installment Loans
      • Types:
        • Student, mortgage, automobile, etc.
      • Secured vs. Unsecured
        • Secured loans are backed by collateral (help guarantee the repayment of a loan).
      • Closed vs. Open Ended
        • Closed-end credit is used for a specific purpose and involves a definite amount of money.
        • Open-end credit gives you a certain limit on the amount of money you can borrow.
      • Cosigner
        • Responsible for the repayment of a loan if the original party does not pay.
      T008.01.06 G8
    • Seller-Provided Credit
      • Many stores provide credit to customers.
      T008.01.07 G9
    • Consumer Finance Companies
      • Specialize in loans to people with poor credit ratings.
      • The cost of credit is higher than other institutions.
      T008.01.08 G10
    • Payroll Advance Services
      • Short-term loans.
      • Pawnshop
        • Based on the value of something you own.
      • “Borrow Until Payday” Loan
        • Cost is extremely high.
      T008.01.09 G11
    • Bonds
      • Bonds – written promise to repay a loan with interest on a specific date. The buyer of the bond is considered the creditor.
      • Corporate Bonds
        • Usually used to finance buildings and equipment.
      • Municipal Bonds
        • State and local governments use these to finance projects.
      • Savings Bonds
        • Sold by federal government.
      T008.10.10 G12
    • Other Sources of Credit for Businesses
      • Small Business Administration
        • Offers a number of financial, technical, and management programs to help businesses.
      T008.01.11 G13
    • Other Sources of Credit for Consumers
      • Life Insurance Plans
        • Cash Value Insurance
          • Provides both savings and death benefits.
      • Retirement Plans
      T008.01.12 G14
    • 8.02 Explain when and why borrowing is used for the purchase of goods and services. G23 T008-02.01 Credit
    • Terms
      • Credit
        • Privilege of using someone else’s money for a period of time.
      • Creditor
        • One who sells on credit or makes a loan.
      • Debtor
        • Anyone who buys on credit or receives a loan.
        • Obligated to pay back the loan.
      G24 T008-02.02
    • Why Use Credit?
      • Convenience
        • Shop without carrying cash.
      • Immediate Possession
        • Allows you to have possession on the goods or services now.
      • Emergencies
        • Helps in case of a serious situation.
      G25 T008-02.03
    • 8.03 Determine the advantages and disadvantages of using credit. T008-03.01 G32 Credit
    • Advantages
      • Immediate Possession
      • Convenience
        • Buy now and pay later.
      • Emergencies
      • Saving Money
        • Buy an item while it is on sale.
      • Credit Rating
        • Establish a favorable credit rating.
      • Growth of the Economy
        • Buying goods will help the economy expand.
      T008-03.02 G33
    • Disadvantages
      • Overbuying
        • Most common hazard.
      • Careless Buying
        • Comparison shopping may not be a priority
        • Encourages impulse buying
      • Higher Prices
        • Some stores offer discounts for cash sales.
      T008-03.03 G34
    • Disadvantages continued
      • Overuse of Credit
        • Too much is owed – unable to pay back.
      • Credit Fees
        • Interest paid on balance
      • Habit Forming
      T008-03.04 G35
    • Results of Overuse
      • Garnishment of Wages
        • Money deducted from wages for money owed.
      • Repossession
        • Loss of property because of failure to repay loan.
      • Bankruptcy
      T008-83.05 G36
    • 8.04 Discuss the factors on which credit is granted and the cost of credit. G42 T008-04.01 Credit
    • Process of Obtaining Credit
      • Credit Application
      • Documentation
      • Processing
      • Underwriting
      • Closing
      • Funding
      G43 T008-04.02
    • Credit Application
      • Form on which you provide information needed by a lender to make a decision about granting credit or approving a loan.
      • Provide the following information:
        • Salary, Employer, Outstanding Credit (Debt), Assets, Credit References, Checking and Savings Accounts, Stock Portfolio, etc.
      G44 T008-04.03
    • Documentation
      • Creditor will collect and verify necessary documentation for the extension of credit.
        • Examples: Bank statements, credit card statements, past W-2’s, etc.
      G45 T008-04.04
    • Processing
      • Building of loan file.
      • Evaluating credit worthiness.
      G46 T008-04.05
    • Credit Worthiness Terms (Processing)
      • The C’s of Credit Worthiness
      • Capacity
        • Your ability to pay (income)
      • Character
        • Earned by paying bills on time and being a trustworthy, reliable, stable person.
        • References – people you have borrowed from in the past.
      • Collateral
        • Security to help guarantee that the creditor will be repaid.
      G47 T008-04.06
    • Credit Worthiness Terms (Processing) continued
      • Credit History
        • Indicates the amount of debt you have and your payment history.
      • Capital
        • How much you have beyond what you owe.
      • Credit Limit
        • Maximum amount you can borrow.
      • Cosigner
        • Responsible for a loan if you, the original debtor, do not pay.
      G48 T008-04.07
    • Underwriting
      • Reviewing loan for soundness.
      • Consumer Reporting Agencies
        • Company that compiles and keeps records on consumer payment habits.
        • Used to evaluate creditworthiness.
          • Examples: Equifax, Experian, and TransUnion.
      G49 T008-04.08
    • Closing
      • Representative explains terms of credit.
      • Debtor signs appropriate forms.
      G50 T008-04.09
    • Funding
      • Creditor will issue credit/funds to the debtor.
      G51 T008-04.10
    • Denial of Credit
      • Fair Credit Opportunity Act requires that credit denial cannot be based on sex, family, religion, etc.
      • Must be based on ability to pay back loan.
      G52 T008-04.11
    • Cost of Credit
      • Interest Rates
        • Percentage that is applied to debt.
      • Principal
        • Amount of money borrowed.
      • Time Factor
        • Length of time for which interest will be charged.
      • Maturity Date
        • Date on which a loan must be repaid.
      G53 T008-04.12
      • Finance Charge or Fees
        • Cost of credit stated in a dollar figure
      • Annual Percentage Rate (APR)
        • Indicates how much credit costs on a yearly basis.
      • Grace Period
        • Time period during which no finance charges will be added to an account.
      • Cash Advance
        • Borrow money on a credit card.
      Cost of Credit continued G54 T008-04.13
    • Simple Interest Formula
      • I=PRT
        • I=Interest
        • P=Principal
        • R=Rate
        • T=Time
      T008-04.14 G55
    • 8.05 Examine bankruptcy and credit laws. G70 T008-05.01 Credit
    • Your Credit
      • Credit Bureau
        • An agency that collects information on how promptly people and businesses pay their bills.
        • Information retrieved from banks, finance companies, stores, credit card companies, and other lenders.
      • Building Credit
        • Open a checking or savings account
        • Apply for a local department store credit card.
        • Take out a small loan from your bank.
        • Pay all loans and credit card bills on time.
      G71 T008-05.02
    • Handling Credit Problems
      • Credit Counselor
        • Helps consumers with credit problems.
      • Consolidation Loan
        • Combines all your debts in order to make one monthly payment on several different loans or credit cards.
      G72 T008-05.03
    • Handling Credit Problems continued
      • Credit Services
        • Consumer Credit Counseling Service
          • Nonprofit organization that provides debt counseling services for families and individuals with serious financial problems.
        • Debt Repayment Plan
          • Reorganizes debt and sometimes includes renegotiating terms of debt.
          • Creditors will often accept such arrangements for partial payment, rather than not be repaid.
      G73 T008-05.04
    • What if you are denied credit?
      • The Equal Credit Opportunity Act says:
        • You have the right to know the reasons.
        • You are entitled to know what specific information in the credit report led to your denial.
        • No fee will be charged if you state why you are requesting a copy of the report.
        • You are entitled to ask the credit bureau to investigate any inaccurate or incomplete information and correct your records.
      G74 T008-05.05
    • Truth-in-Lending Laws
      • Requires that you be told the cost of a credit purchase in writing before you sign a credit agreement.
      • Protects consumers against unauthorized use of credit cards.
        • Limits your liability to $50 for unauthorized credit card purchases made prior to notification of the issuer.
      G75 T008-05.06
    • Usury Laws
      • Restricts the amount of interest that can be charged.
      G76 T008-05.07
    • Equal Credit Opportunity Act
      • The credit application can be judged only on the basis of financial responsibility.
      • Cannot discriminate based on gender, age, ethnicity, or religion.
      • Allows only three reasons for denying credit:
        • Low income
        • Large current debts
        • Poor record of making payments in the past
      G77 T008-05.08
    • Fair Credit Billing Act
      • Requires creditors to correct billing mistakes brought to their attention.
      • Requires creditor to inform consumers of steps they need to take to get the error corrected.
      G78 T008-05.09
    • Fair Credit Reporting Act
      • Gives consumers the right to know what specific information credit bureaus are providing to potential creditors, employers, and insurers.
      G79 T008-05.10
    • Fair Debt Collection Practices Act
      • Protects consumers from collection agents.
      • Collection agents:
        • Must identify themselves.
        • Cannot tell others about the debt.
        • Cannot harass debtor.
      G80 T008-05.11
    • Federal Trade Commission (FTC)
      • Enforces laws on credit.
      G81 T008-05.12
    • Bankruptcy
      • Legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts.
      G82 T008-05.13
    • US Bankruptcy Act of 1978
      • Chapter 7 (Liquidation)
        • Draw up a petition listing assets and liabilities.
        • Most of the debtor’s assets are sold to pay off creditors.
        • Cannot release debt on alimony, child support, taxes, fines, educational loans, and court fees.
      • Chapter 11 – (Reorganization) Businesses Only
      • Chapter 13
        • Propose a plan for using future earnings and assets to eliminate debts over a period of time.
      G83 T008-05.14
    • Effects of Bankruptcy
      • Kept on file with credit bureau for 10 years.
      • Affects credit rating, future extensions of credit, loss of jobs, etc.
      T008-05.15 G84