Presentation on theme: "CREDIT/CONSUMER RIGHTS CH. 20. CREDIT Receiving something with the promise of payment at a later time. Principle: Actual cost of the good or service."— Presentation transcript:
CREDIT/CONSUMER RIGHTS CH. 20
CREDIT Receiving something with the promise of payment at a later time. Principle: Actual cost of the good or service. Interest: Amount paid for the use of money.
CHARGE ACCOUNTS Buy goods and services at individual stores and pay for them later. Credit limit: Maximum amount a person can buy with the promise of payment at a later time. Three types of accounts are installment, regular, and revolving.
TYPES OF CHARGE ACCOUNTS 1.Installment Account Repaid with equal payments over a certain period of time Part of the payment goes towards interest & part towards the principle Car loan or mortgage 2.Regular Account Billing cycles where a bill is sent at the end No interest is charged if entire bill is paid Account can’t be used again until the balance is paid Interest is charged on the balance not paid Furniture Stores usually do this. Pay by 2010, certain amount each month, but with no interest. 3.Revolving Account Billing cycles where a bill is sent at the end Interest charged on portion not paid Account can still be used until credit limit is reached Example: Credit Cards
CREDIT AND DEBIT CARDS Credit cards: Make purchases without cash. Used to purchase items and receive loans. Charge high interest rates (Avg. 18%) in the 1990 ’ s. Lower interest rates if the customer is “ reliable ”. Debit Cards: Transfer funds electronically. Popular use in Automated Teller Machines (ATM ’ s) Now can be tied directly to checking accounts (check cards)
CREDIT CARDS Make purchases without having the money Charge high interest rates – usually @ 18% Lower interest rates if the customer is reliable Finance Charges – Cost of credit (interest) expressed in dollars APR – Cost of credit (interest) expressed as a percentage
APPLYING FOR CREDIT Fill out application Credit Bureau does a credit check Creditor may ask for references Credit checks show your income, debt and ability to pay debts in the past
CREDIT RATING Rating of risk: Excellent, Good, Average or Poor Ratings have a number associated with them 3 Credit Bureaus: Experian, Transunion & Equifax Gives lenders an idea of reliability when issuing loans Higher Credit Score = less interest you are charged on a loan = saving money Unsecured loans – loan based on reputation Secured loans – have collateral to back up the loan
GOVERNMENT REGULATIONS Equal Credit Opportunity Act: a person can’t be denied credit because of race, religion, national origin, gender, marital status or age Usury Laws: Restrict the amount of interest companies, not banks, can charge In North Carolina, it is 8%. Lend neighbor $100 loan can only receive $8 from interest
BANKRUPTCY Debts are so large they can’t be paid back Most of what a debtor owns is sold or given to creditors Takes 10 years to reestablish credit States can become bankrupt too
FINANCIAL INSTITUTIONS Commercial banks: Main functions are accepting deposits, lending money, and transferring funds. Savings and loan: Very much like commercial banks. Normally smaller banks. Savings banks: Original purpose was to help those overlooked by large banks. Sometimes charge higher interest rates. Credit Unions: Offer high interest on saving and low interest on loans. Must be a member to use their services. Finance Companies: Charge high interest rates. Used by those with bad credit history.
CONSUMER RIGHTS Consumer – someone who buys a product or service (YOU!) Types of Income Disposable Income – money remains after taxes taken out. Money to pay for house, car, etc. Discretionary Income – money remaining after paying for necessities Either save or spend it
CONSUMER RIGHTS CONT. Consumerism – a movement to educate buyers on purchases and to make sure products are safe Congress laws – Pure Food and Drug Act in 1906 Private groups – BBB or Better Business Bureau Consumer Bill of Rights Consumers have… Right to a safe product Right to be informed Right to choose Right to be heard Right to redress
CONSUMER RESPONSIBILITIES Smart Buying Strategies Info on products Watch out for advertising Comparison shopping – find out prices on product from different stores/internet Brand Name vs. Generic When product fails Report it Check the warranty Keep a copy of records Be calm Make Fair complaints Ex.