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What is Consumer Credit?

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Presentation on theme: "What is Consumer Credit?"— Presentation transcript:

1 What is Consumer Credit?
Unit 3

2 Why is having good credit important?
Credit – is an arrangement to receive cash, goods, or services now and pay for them in the future. Consumer Credit – is the use of credit for personal needs. Creditor – is a financial institution, merchant, or individual that lends money Good credit is very valuable

3 Credit Uses and Misuses Factors to Consider BEFORE Using Credit
Do you have the cash you need for the down payment? Do you want to use your savings instead of credit? Can you afford the item? Could you use the credit in some better way? Could you put off buying the item for a while? What are the opportunity costs of postponing the purchase? What are the costs of using credit?

4 Advantages vs. Disadvantages of Using Credit
Let’s you enjoy goods and services now and pay for them later Credit cards allow you to combine several purchases and make just one monthly payment Hotel reservations, renting a car, shopping by phone or online you will probably need a credit card Credit costs money! Temptation to buy more than you can afford Can get into trouble fast! Can lose your good credit reputation Bad credit affects many different aspects of your life Renting a residence Buying a car Getting a job

5 Types of Credit Closed-End Credit & Open-End Credit
One-time loan that is paid back over a specified period of time in payments of equal amounts. Installment sales credit – down payment, pay over set period of time Installment cash credit – direct loan for money personal purposes, home improvements, or vacation expenses Single lump-sum credit – loan that must be repaid in total on a specified day, usually within 30 to 90 days

6 Types of Credit Closed-End Credit & Open-End Credit
Credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services Line of credit – is the maximum amount of money a creditor will allow a credit user to borrow Store credit cards, VISA, MasterCard, Discover Once approved, company bills you monthly

7 Sources of Consumer Credit “Loans”
Loans – borrowed money with an agreement to repay it with interest within a certain amount of time Inexpensive Loans – parents or family members, with little or no interest Medium-Priced Loans – banks, credit unions – loans with moderate interest charges Expensive Loans – easiest to obtain; finance companies and retail stores; high interest rates Home Equity Loans – loan based on your home equity; the difference between the current market value of your property and the amount you still owe on the mortgage

8 Sources of Consumer Credit “Credit Cards”
Credit cards – most companies offer grace periods Finance Charge – cost of credit Debit Cards – electronically allows you to subtract money from your savings or checking accounts Cobranding – linking of a credit card with a business trade name offering “points” toward the purchase of a product or service Smart Cards – equipped with a computer chip; stores 500 times as much as a credit card; Example: frequent flyer miles Store-Value (or Gift) Cards – prepaid gift cards


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