Itb Chap 18


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Itb Chap 18

  1. 1. Consumer Credit 18-1 Credit Fundamentals 18-2 Cost of Credit 18-3 Credit Application and Documents 18-4 Protection of Credit Rights 18
  2. 2. LESSON 18-1 Credit Fundamentals <ul><li>Goals </li></ul><ul><li>Identify the types of consumer credit. </li></ul><ul><li>Describe the benefits of using credit. </li></ul><ul><li>Explain some disadvantages of using credit. </li></ul>
  3. 3. Key Terms <ul><li>credit </li></ul><ul><li>finance charge </li></ul><ul><li>down payment </li></ul><ul><li>installment loan </li></ul><ul><li>promissory note </li></ul><ul><li>collateral </li></ul><ul><li>cosigner </li></ul><ul><li>credit rating </li></ul>
  4. 4. USING CREDIT <ul><li>Credit </li></ul><ul><li>Debtor </li></ul><ul><li>Creditor </li></ul>
  5. 5. TYPES OF CREDIT <ul><li>Trade credit </li></ul><ul><li>Loan credit </li></ul><ul><li>Installments </li></ul><ul><li>Sales credit </li></ul>
  6. 6. CHARGE ACCOUNTS <ul><li>Regular accounts </li></ul><ul><li>Budget accounts </li></ul><ul><li>Revolving accounts </li></ul><ul><ul><li>Credit limit </li></ul></ul><ul><ul><li>Payments </li></ul></ul><ul><ul><li>Finance charge </li></ul></ul>
  7. 7. CREDIT CARDS <ul><li>Bank cards </li></ul><ul><li>Travel and entertainment cards </li></ul><ul><li>Oil company cards </li></ul><ul><li>Retail store cards </li></ul>
  8. 8. FEATURES OF INSTALLMENT CREDIT <ul><li>Signing a sales contract that shows the terms of the purchase </li></ul><ul><li>Receiving the purchased item at the time of the sale </li></ul><ul><li>Making a down payment </li></ul><ul><li>Paying a finance charge on the amount owed </li></ul><ul><li>Making regular payments at stated times </li></ul>
  9. 9. CONSUMER LOANS <ul><li>Installment loan </li></ul><ul><li>Single payment loan </li></ul><ul><li>Promissory note </li></ul><ul><li>Collateral </li></ul><ul><li>Secured loan </li></ul><ul><li>Cosigner </li></ul>
  10. 10. >> C H E C K P O I N T <ul><li>What are the major types of consumer credit? </li></ul>
  11. 11. BENEFITS OF CREDIT <ul><li>Convenience </li></ul><ul><li>Immediate possession </li></ul><ul><li>Savings </li></ul><ul><li>Credit rating </li></ul><ul><li>Useful for emergencies </li></ul>
  12. 12. >> C H E C K P O I N T <ul><li>What are the main advantages of consumer credit? </li></ul>
  13. 13. CREDIT CONCERNS <ul><li>Overbuying </li></ul><ul><li>Careless buying </li></ul><ul><li>Higher prices </li></ul><ul><li>Overuse of credit </li></ul>
  14. 14. QUESTIONS TO ASK <ul><li>How will you benefit from this use of credit? </li></ul><ul><li>Is this the best buy you can make or should you shop around? </li></ul><ul><li>What will be the total cost of your purchase, including the finance charges? </li></ul><ul><li>What would you save if you paid cash? </li></ul><ul><li>Will the payments be too high for your income? </li></ul>
  15. 15. >> C H E C K P O I N T <ul><li>What are potential drawbacks of buying on credit? </li></ul>
  16. 16. LESSON 18-2 Cost of Credit <ul><li>Goals </li></ul><ul><li>Calculate interest in consumer credit situations. </li></ul><ul><li>Explain finance charges when using credit. </li></ul>
  17. 17. Key Terms <ul><li>interest </li></ul><ul><li>annual percentage rate (APR) </li></ul>
  18. 18. FINDING INTEREST Length of time for which interest will be charged, usually expressed in years or parts of a year Time, T Percent of interest charged or earned Interest Rate, R Amount of the loan Principal, P
  19. 19. SIMPLE INTEREST Time  Rate  Principal  Interest T  R  P  I
  20. 20. SIMPLE INTEREST EXAMPLES     60/360 1/12 2 1 T $100 $100 $100 $100 P $2  .12   I 60 days $1  .12   I One month $24  .12   I Two years $12  .12   I One year  R   I
  21. 21. MATURITY DATES <ul><li>Maturity date is the date on which a loan must be repaid. </li></ul><ul><li>Time stated in months </li></ul><ul><ul><li>One month loan made on January 15 is due on February 15 </li></ul></ul><ul><ul><li>Two month loan made on January 15 is due on March 15 </li></ul></ul><ul><li>Time stated in days </li></ul><ul><ul><li>90 day loan made on March 4 is due on June 2 </li></ul></ul>
  22. 22. 90-DAY LOAN EXAMPLE <ul><li>Determine maturity date for a 90-day loan made on March 4 </li></ul><ul><li>Find the number of days remaining in March </li></ul><ul><li>Add days until you reach 90 days </li></ul><ul><li>Due date is June 2 </li></ul>March 27 days (31–4) April 30 days May 31 days June 2 days Total 90 days
  23. 23. INSTALLMENT INTEREST <ul><li>Decreasing loan payments </li></ul><ul><li>Level loan payments </li></ul>
  26. 26. >> C H E C K P O I N T <ul><li>What three things are necessary to calculate interest? </li></ul>
  27. 27. FINANCE CHARGES <ul><li>Annual percentage rate (APR) </li></ul><ul><li>Total dollar charges </li></ul><ul><li>Compare credit costs </li></ul>
  28. 28. >> C H E C K P O I N T <ul><li>What does APR represent? </li></ul>
  29. 29. LESSON 18-3 Credit Application and Documents <ul><li>Goals </li></ul><ul><li>Explain the credit application process. </li></ul><ul><li>Describe the activities of a credit bureau. </li></ul><ul><li>Discuss commonly used credit documents. </li></ul>
  30. 30. Key Terms <ul><li>credit application </li></ul><ul><li>credit bureau </li></ul><ul><li>statement of account </li></ul>
  31. 31. CREDIT APPLICATION PROCESS <ul><li>The three Cs of credit </li></ul><ul><ul><li>Character </li></ul></ul><ul><ul><li>Capacity </li></ul></ul><ul><ul><li>Capital </li></ul></ul><ul><li>Credit applications </li></ul><ul><li>Documenting credit data </li></ul><ul><li>Actions to establish credit </li></ul>
  32. 32. >> C H E C K P O I N T <ul><li>What are the three Cs of credit? </li></ul>
  33. 33. CREDIT BUREAU <ul><li>Gathers information on credit users </li></ul><ul><li>Sells information to businesses offering credit, such as banks, finance companies, and retail stores </li></ul><ul><li>Creates a credit report showing debts owed, how often credit is used, and whether debts are paid on time </li></ul>
  34. 34. >> C H E C K P O I N T <ul><li>What is the main purpose of a credit bureau? </li></ul>
  35. 35. CREDIT DOCUMENTS <ul><li>Credit contracts </li></ul><ul><li>Statement of account </li></ul><ul><li>Accuracy of records </li></ul><ul><li>Avoiding fraud </li></ul>
  36. 36. >> C H E C K P O I N T <ul><li>What are the main items reported on a statement of account? </li></ul>
  37. 37. LESSON 18-4 Protection of Credit Rights <ul><li>Goals </li></ul><ul><li>Identify credit application regulations. </li></ul><ul><li>Explain credit use regulations. </li></ul><ul><li>Discuss credit problems and available assistance. </li></ul>
  38. 38. Key Terms <ul><li>credit counselor </li></ul><ul><li>bankruptcy </li></ul>
  39. 39. CREDIT APPLICATION REGULATIONS <ul><li>Truth-in-Lending Law of 1968 </li></ul><ul><li>Equal Credit Opportunity Act </li></ul>
  40. 40. >> C H E C K P O I N T <ul><li>How does the Truth-in-Lending Law assist consumers? </li></ul>
  41. 41. CREDIT USE REGULATIONS <ul><li>Fair Credit Billing Act </li></ul><ul><li>Fair Credit Reporting Act </li></ul><ul><li>Consumer Credit Reporting Reform Act </li></ul><ul><li>Fair Debt Collections Act </li></ul>
  42. 42. >> C H E C K P O I N T <ul><li>What is the purpose of the Fair Credit Reporting Act? </li></ul>
  43. 43. CREDIT PROBLEMS AND ASSISTANCE <ul><li>Credit Counseling </li></ul><ul><li>Bankruptcy </li></ul>
  44. 44. >> C H E C K P O I N T <ul><li>What actions can a person take when facing credit problems? </li></ul>
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