1. Borrowing Wisely Senior Advisory Week of May 23, 2016

2. What is credit?  It is the use of someone else’s money  Borrow now – pay back later  Credit is a privilege – not a right  It’s not a GIFT  Credit needs to be obtained and maintained with caution and responsibility. It stays with you!

3. Types of Credit  Open-end credit (credit cards) - borrower can use credit up to a stated limit  Closed-end credit (expensive purchases i.e. auto loan) – loan for a specific amount that must be repaid in full, including finance charges by a stated date

4. Sources of Credit  As a group brainstorm examples of each: Retail Stores Credit Card Companies Banks & Credit Unions Pawnshops Private Lenders

5. What might you need credit for?  Make a list as a group  Some are: Personal Loans Auto/Truck Loans Student Loans Mortgages Home Improvement Loans

6. Borrowing and Credit Vocabulary  Credit- a loan of money that is to be paid back over a period of time  Principal – amount borrowed  Interest – money paid as a fee for borrowing money APR = Annual Percentage Rate  Must pay both principal and interest

7. Understanding Loan Principles  There are 3 things that determine the total cost of a loan The amount of the loan The length of the loan The interest rate (APR)  Review the two loans on next two slides  Compare the costs  Answer questions as a group

8. 4 Year Loan - $10,000 Interest Rate Monthly Payment Total Interest Total Payments 9%$248.85$1944.83$11944.83 10%$253.63$2174.00$12174.00 11%$258.46$2405.85$12405.85 12%$263.34$2640.23$12640.23 13%$268.27$2877.29$12876.96 What is the monthly payment on a 10% loan for four years? What is the total amount of interest paid on an 11% loan for four years?

9. 6 Year Loan - $10,000 Interest Rate Monthly Payment Total Interest Total Payments 9%$180.26$2978.28$12978.28 10%$185.26$3338.53$13338.53 11%$190.34$3704.58$13704.58 12%$195.50$4076.24$14076.24 13%$200.74$4453.37$14453.37 What is the monthly payment on a 10% loan for six years? What is the total amount of interest paid on a 11% loan for six years?

10. Comparison Questions?  Is it cheaper to have a 13% loan for four years or a 9% loan for six years?  Why would you want the six year loan?  Why would you want the four year loan?

11. General Rule  The longer the loan, the lower the payments and the more interest you will have to pay.

12. Amortization  This loan is for $12,000, 4 years and interest is 8 ½%  Your payment of $295.78 is broken into principal & interest.  At the end of the loan you will have paid $14,205.90 for the $12,000 you borrowed.  Check it out……

13. Amortization Schedule PaymentPrincipalInterestBalance 8.5%12,000.00 1210.7885.0011704.22 2212.2783.5111408.44 3213.7882.0011112.66 4215.2980.4910816.88 45287.558.231283.08 46289.586.20591.52 47291.634.15295.74 48293.662.080

14. How can you establish credit?  Savings & Checking Account  Secured Credit Card – put a deposit down at the bank and can “borrow” up to the amount at bank. Shows responsibility and payment history  Have cell phone bill in your name  When you rent an apartment – put utilities in your name  All items must be paid timely to establish GOOD credit

15. How Credit is Determined:  Creditworthy – having the capacity, capital and character to pay back borrowed money  Capacity – the ability to pay  Capital – savings and assets used to gain credit  Character – how trustworthy a person seems to a lender

16. Credit Cards  What is the cost? APR- the higher the rate the more money you pay Finance Charge – interest, service charge and other fees  Compare cards before you sign up!

17. Things to look at……  APR – Annual Percentage Rate  Fees – can add up quickly  Grace Period – in case your late  Other Charges – late payments, etc  Method of Calculating Interest Average Daily Balance Daily Balance Previous Balance

18. Debit vs. Credit Cards Debit Cards  Debit cards work like cash  Amount is deducted from your account immediately  Debit cards are sometimes also ATM cards Credit Cards  Credit cards are borrowing

19. Things to Watch Out For  Overspending  Impulse Buying  Identity Theft  Online Accounts and Purchases  Not Understanding the Cost of Credit

20. Final Notes  Feel free to investigate other activities to further your Loan and Credit knowledge.  Good money sense is a lifetime skill. A good foundation is priceless!