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4 Americans And Credit


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4 Americans And Credit

  1. 1. Objective: Analyze how buying on credit affects you and the economy
  2. 2. <ul><li>Credit is receiving of funds either directly or indirectly to buy goods and services today with the promise to pay for them in the future </li></ul><ul><li>Principal is the amount of money you originally borrowed </li></ul><ul><li>Interest is the amount of money you pay for borrowing money </li></ul>
  3. 3. <ul><li>Installment Debt is the most common form of debt </li></ul><ul><li>Debt is repaid over a period of time in equal payments </li></ul><ul><li>Most people use credit to buy durable goods (items that last longer than three years) </li></ul><ul><li>Largest example of installment debt are mortgages for homes </li></ul>
  4. 4. <ul><li>People use credit for two reasons </li></ul><ul><li>1. to get what they want without waiting </li></ul><ul><li>2. to spread payments over time </li></ul><ul><li>When you use credit you also pay interest on the credit you use </li></ul><ul><li>It’s a good idea to know the cost of credit before you make a decision </li></ul>
  5. 5. <ul><li>Commercial Banks- main business checking, savings, and loans </li></ul><ul><li>Savings and Loan Associations- like a bank except no checking </li></ul><ul><li>Savings Banks- Like the first two except smaller </li></ul><ul><li>Credit Unions- is owned and operated by its members and offer competitive rates </li></ul><ul><li>Finance Companies- makes loans to customers on behalf of stores </li></ul>
  6. 6. <ul><li>Regular Charge Accounts- is in store credit that must be paid in full within 30 days </li></ul><ul><li>Revolving Charge Accounts- is in store credit that allows you to continue to charge as long as you make monthly payments </li></ul><ul><li>Installment Charge Accounts- You make equal payments until it is paid off you are not allowed to charge again until your account is paid in full </li></ul>
  7. 7. <ul><li>Finance Charge- is what you pay for the privilege of using credit </li></ul><ul><li>Annual Percentage Rates (APR) is the cost of credit expressed as a yearly percentage </li></ul><ul><li>Debit Cards- is like a credit card except you use the cash in your checking account to pay for things. </li></ul>
  8. 8. <ul><li>Several factors affect your creditworthiness </li></ul><ul><li>Your credit Rating- how you handle credit </li></ul><ul><li>Capacity to Pay- how much debt do you have versus how much you make </li></ul><ul><li>Character- your reputation </li></ul><ul><li>Collateral- is money, cars, homes </li></ul><ul><li>Secured Loans- are loans that are backed up by collateral </li></ul><ul><li>Unsecured Loans- have no collateral </li></ul>
  9. 9. <ul><li>Truth in lending act (1968) Ensures that consumers are fully informed about costs of borrowing </li></ul><ul><li>Fair Credit Reporting Act (1970) Protects privacy and accuracy of your credit report </li></ul><ul><li>Equal Credit Opportunity Act (1974) prevents discrimination when applying for credit </li></ul><ul><li>Bankruptcy- is when you can’t repay your debt; it ruins your credit for ten years and you lose all of your stuff </li></ul>
  10. 10. <ul><li>What is Credit? </li></ul><ul><li>Ans. is receiving funds today for items; you will repay the money in the future </li></ul><ul><li>What is principal? </li></ul><ul><li>Ans. The amount you borrowed </li></ul><ul><li>What is interest? </li></ul><ul><li>Ans. The amount you pay for borrowing </li></ul><ul><li>What is disposable income? </li></ul><ul><li>Ans. Money left over after taxes </li></ul>