2Goals for Chapter 16.1 What is Credit? Describe the history of credit in America.Define basic credit vocabulary.Discuss the advantages and disadvantages of using credit.
3History of CreditCredit is money borrowed to buy something now, with the agreement to pay for it later.The Early YearsGeneral StoreBanks usually charged between percent interest.
41900’s Between 1920 and1990, credit became a way of life. No longer used just for emergencies.The 1970’s brought the first consumer credit protection legislation.1990’s saw a record number of people declare bankruptcy because of overextended credit.
5Credit today Credit is very easy to get. The Internet has opened new uses of credit cards.
6Credit VocabularyWhen you borrow or use credit, you are a borrower or debtor.The person or company who loans money or extends credit to you is called the creditor.Capital is property pledged to assure repayment of a loan.
7The interest you pay for the use of credit is called a finance charge. At times, you may have to sign an installment agreement, where you agree to make regular payments for a set period of time.
8Advantages of Credit Increased purchasing power Emergency funds A sudden need for cash can be solved by a line of credit, which is a pre-established amount that can be borrowed on demand with no collateral.ConvenienceDeferred billing is a service available to charge customers whereby purchases are not billed to the customer until later.Safer than carrying large amounts of cash
9Disadvantages of Credit Higher PricesFinance ChargesTie Up IncomeOverspending
10Goals for Chapter 16.2 Types and Sources of Credit List and describe the kinds of credit available to the American consumer.Describe and compare sources of credit.
11Open-Ended CreditOpen-ended credit is an agreement to lend the borrower an amount up to a stated limit and to allow borrowing up to that limit again, whenever the balance falls below the limit.
12In an 30-day credit agreement, a consumer promises to pay the full balance owed each month. (American Express Card)In a revolving credit agreement, a consumer has the option each month of paying in full or making payments at least as high as the stated minimum. (VISA, MasterCard, etc)
13Credit Card TermsAnnual percentage rate (APR) is the cost of credit, expressed as a yearly percentage.A free period, or grace period, allows you to avoid the finance charge by paying your current balance in full before the due date shown on your billing statement.Many credit card issuers charge an annual fee.Transaction Fees and Late FeesMethod of Calculating the Finance Charge
15Closed-End CreditClosed-end credit is a loan for a specific amount that must be repaid, in full, including all finance charges, by a stated date.
16Service CreditAlmost everyone uses some type of service credit, which is an agreement to have a service performed now and pay for it later.
17Sources of Credit Retail Stores Banks and Credit Unions Finance CompaniesUsually charge higher interest rates.Usury laws set maximum interest rates that may be charged for loans.PawnbrokersPrivate Lenders