Presentation on theme: "THE BASICS OF CREDIT TYPES OF CREDIT"— Presentation transcript:
1 THE BASICS OF CREDIT TYPES OF CREDIT SECURED CREDIT (Mortgage or Car Loan)In This Type of credit, you make a large purchase like a car or a home and the lender owns the item until you have paid it in full in including interestIf you fail to make the payments the item will be seized by the lender of a representativeWhat role should consumers play in the economy
2 THE BASICS OF CREDIT UNSECURED CREDIT (credit cards) In this type of credit, a credit card company agrees to let you charge items to an accountYou agree that you will pay back the initial purchase price, plus interestThe interest is based on the time required to pay the funds backUnsecured credit charges higher rates of interest than secured credit
3 THE BASICS OF CREDIT PRIVATE LOANS These are unregulated loans from friends or familyIn these situations the repayment options can be formal or informal and the amounts of interest can vary dramaticallyThese loans are often used for items traditional creditors would not finance
4 THE BASICS OF CREDIT THINGS YOU NEED TO KNOW Items that are considered when you apply for a loan includeWages you earnHow long you have been employedSpouse’s income and credit historyCurrent monthly billsItem you are attempting to financePast borrowing history
5 THE BASICS OF CREDIT INTEREST RATES VARY Items that cause interest rates to varyHistory with the lending institutionLoan termType of spending with borrowed moneyChoice of a floating rate
6 THE BASICS OF CREDIT SOME TERMS YOU SHOULD KNOW CO SIGNER A person who will guarantee to pay back the money you have borrowed under the agreed to conditions should you default on your loanFINANCE CHARGESThe total amount one will pay in addition to the purchase price, when using credit. It includes interest charges, service charges and sometimes insurance
7 THE BASICS OF CREDIT SOME TERMS YOU SHOULD KNOW OPPORTUNITY COST The loss of the next best alternative when scarce resources are used for one thing instead of anotherANNUAL PRECENTAGE RATE (APR)The rate of interest you will be charged stated as a yearly rate. Lenders must tell borrowers the APR
8 THE BASICS OF CREDIT ADVANTGES OF CREDIT Convenient Provides detailed accurate recordsSafer than cashPermits buying sale items when cash is not availablePermits using items while paying
9 THE BASICS OF CREDIT DISADVANTGES OF CREDIT Makes it easier to overspend and exceed a budgetHas the opportunity of cost of reduced future spendingOften requires additional costs in interest and service chargesRequires the approval of a creditorIf abused may not have the opportunity to borrow in the future
10 THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #1: Partial PaymentWhen you use your credit card, you're borrowing money. If you pay it back in full, on time, every month -- there’s no interest.But if you pay just part of your balance – you’ll owe interest on your total monthly bill. It’s called “Partial Payment” and it is in your cardholder’s agreement, in some form.
11 THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #2: Currency Conversion FeeThe fee is applied to foreign purchases – including those made online. It's often rolled into the currency exchange rate, which means you likely won’t see it appear as an individual charge on your bill.You will be charged a fee every time you buy anything in foreign dollars – on top of the exchange rate. And you’ll be charged again if you return the item
12 THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #3: Interest Rate IncreasesA credit card company can step up your rate at their discretion. If you miss a couple of payments, your rate can rise as much as five per cent.Companies have the right to increase your interest rate at any time.There is a ceiling though: we can only raise your rate by a maximum of 60 per cent.
13 THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #4: Due Date IssuesYou make your payment on the internet on the due date and assume no interest chargesBut in the fine print of its cardholder’s agreement, companies warn that it could take three to five days to process a payment.
14 THE CREDIT CARD INDUSTRY:THE STATS THE CANADIAN REALITYNumber of credit cards (Visa and MasterCard) in circulation in Canada in 2003: 50.4 million, or more than two cards per Canadian adult.Number of cards which carried a balance: 22.2 millionAmount Canadians owed on their Visa and MasterCards by the end of 2003: $49.8 billionPercentage of Canadian Visa/MasterCard holders who haven’t paid their bill in three months or more in 2003: 0.8%
15 THE CREDIT CARD INDUSTRY:THE STATS THE CANADIAN REALITYNet retail sales via Visa or MasterCard in 2003: $ billionNumber of Visa and MasterCard sales processed in 2003 in Canada: 1,524,800Average Visa/MasterCard sale in 2003: $102.00Number of credit cards reported lost or stolen in 2003: 810,859. Number of cards fraudulently used in 2003: 146,310Fraudulent sales written off in 2003: $183,600,000Number of merchants in Canada that accepted Visa/MasterCard as payment in 2003: 1,187,384
16 THE CREDIT CARD INDUSTRY:THE STATS THE CANADIAN REALITYRange in interest rates offered by bank-issued credit cards: 9.90% %Range in annual fees charged by bank-issued credit cards: $0 - $234Range in interest rates offered by retailer-issued credit cards: 24.0% %Number of retailer-issued credit cards in circulation in Canada in 2003: 23.9 million