chapter 4. what is credit? installment debt ◦ durable goods ◦ longer term = but longest terms...
DESCRIPTION
$ 1,000 Installment Loan At9 % Interest Term Of Loan 24 Months36 Months Monthly Payments$45.69$31.80 Total Interest Paid$96.56$ Total of Payments$ $TRANSCRIPT
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Chapter 4
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What is Credit?
Installment Debt
◦ Durable Goods◦ Longer Term = BUT
Longest Terms Up to 30 years
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$1,000 Installment
Loan At 9 % Interest
Term Of Loan 24 Months 36 MonthsMonthly Payments $45.69 $31.80Total Interest Paid $96.56 $144.80Total of Payments $1096.56 $1144.80
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Checklist for Using Credit for Purchases◦ Do I really require the item? Can I postpone
purchasing?◦ If I pay cash, what will I be giving up that I could
buy with these funds?◦ If I borrow, will the satisfaction I get from using
the item now outweigh the interest paid?◦ Have I done comparison shopping for credit?◦ Can I afford to use credit now?
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◦ Offer widest variety of services
Interest rates usually slightly lower than commercial Savings Banks
◦ Lend money for mortgages, auto and personal loans◦ Many also offer checking and other commercial functions
Credit Unions
◦ Higher interest earnings and lower interest charges Finance Companies
◦ Installment debt for stores
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Charge Accounts or Charge Card◦ Buy goods from a particular company or store
Set amount can be charged No interest if paid in specified amount of time
Very high interest rate if unpaid on time◦ Revolving Charge Account
◦ Installment Charge Account
Principal and Interest paid monthly Credit Cards
◦ Difference between Charge Cards?◦ Difference between Debit and Credit Cards?
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Finance Charges?◦ Interest costs + any other costs with having
Credit Dollar and Cents cost of credit
◦ Computed in 4 Ways (Next Slide) Annual Percentage Rates
◦ Also included is any non-interest cost of credit
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Previous Balance Method Adjusted Balance Average Daily Balance Past Due Balance
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I can apply for credit and understand what factors will determine if I can get credit
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How does a person get credit?
Private Business◦ Credit Check
(debt:income, length at job, unemployed), character, any collateral What determines a person’s creditworthiness?
◦ Higher the score better potential to get loan AnnualCreditReport.com
Equifax, TransUnion, and Experian – 1 Free a year FROM EACH COMPANY http://www.annualcreditreport.com
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Having many open accounts
◦ Stays for 10 years Unemployment
Secure Loan vs. Unsecured loan◦ Cosigner?
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I can identify steps to get out of trouble if I misuse credit
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Itemize Debts Contact Creditors Seek help from Government/Financial
Advisors Eliminate High Interest Debt First Create another Budget and LIVE BY IT
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Loan is a Promise!!◦ If you don’t repay, creditor loses $
Losses passed off to others◦ Hurts credit rating
Keep track of all charges◦ Immediately report Fraud, Lost or Stolen Card
Visit Financial Counselors for Help if Needed◦ Consolidate Loans◦ Pay High Interest First◦ Pay more than Minimum Payment
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I know the laws protecting me as a borrower and the negative impact Bankruptcy has on my life.
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The Truth in Lending Act (1968)
The Equal Credit Opportunity Act (1974)
◦ Cannot deny because income comes from public assistance
State Usury Laws◦ Limits on amount of interest that can be charged
Consumer Finance Agencies allowed higher because loans are high risk
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THIS IS THE FINAL RESORT!!! What is Bankruptcy? How does Bankruptcy work?
◦ Taxes, Child support, Alimony, School Loans MUST be repaid
◦ Stays on record for 10 years◦ Constitution allows Congress to make laws on Bankruptcy
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 Encourages people to file Chapter 13 vs. Chapter 7
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Chapter 7 Chapter 13
Disadvantages:◦ Give up all assets
Exempt – Jewelry, work tools, household furnishings
Turned over to a Trustee Gets Liquidated
◦ Cannot file for 8 years Advantages:
◦ Gets rid of unsecured debt◦ Stops foreclosure,
garnishment, utility shut-offs
Disadvantages:◦ Must show plan to rid
debt in next 3-5 years Advantages:
◦ Can keep chosen property
◦ Can refile in as little as 2 years if needed
◦ Stops foreclosure, garnishment, utility shut-offs