12The Meaning of CreditCredit is an arrangement through which you may receive cash, goods, or services now and pay for them in the future.The cost of using someone else’s money is called interest.
13The Meaning of CreditThe party who sells the goods on credit or lends the money is called the creditor.The party who buys the goods on credit or borrows the money is called the debtor.
14Pre-Learning Question What are the different types of credit?
15Types of Credit There are two main kinds of credit. Open-end credit Closed-end credit
16Open-End CreditOpen-end credit is credit that can be increased by the debtor by continuing to purchase goods or services on credit, up to a certain limit.
17Open-End CreditYou are given a line of credit, or a maximum amount of money made available to you. Charge accounts and credit cards are some examples.
18Closed-End CreditClosed-end credit is credit given for a specific amount of money and cannot be increased by making additional purchases. Buying a vehicle and making monthly installments is one example.
19Pre-Learning Question What should you know before you borrow money?
20Borrowing MoneyResearch the questions you will be asked when you apply for a loan.Shopping for a competitive interest rate can save you a lot of money in the long run.
21Truth in LendingThe Truth in Lending Act requires that lenders tell you both the finance charge and the annual percentage rate (APR) of the loan, so you can compare the cost of a loan from different lenders.
22Secured LoansA secured loan is one in which creditors obtain an interest in something of value, called collateral, from which they can secure payment if you do not pay.
23Secured LoansThe interest that is given to creditors is known as a security interest.The lender or seller who holds the security interest is known as the secured party.
24RepossessionIf the debtor does not pay back the loan, the secured party has the right to repossess, or take back, the goods.
25Repossession Repossession must be done without breaching the peace. If the debtor refuses to surrender the goods, legal process must be used to obtain them.
26CosignatureLoans can also be secured by having a second person, called a cosigner or surety, sign the contract, agreeing to pay the loan, if necessary.
27Fill in the blanks.The _____ is the party who sells goods on credit or lends money.
35Pre-Learning Question Do you know how to choose a credit card?
36Credit CardsCredit cards have become an important part of our culture, and choosing the best one for you can save you money.
37Credit CardsTotal amount of U.S. credit card debt in 2001— $680 billionNumber of different credit cards in the average family—13
38Credit CardsOutstanding credit card debt of the average credit card holder—$8,000Percent interest paid on that outstanding debt—17 percent
39Choosing a Credit CardHere are five tips for choosing the best card for you.Department stores and gasoline companies are good places to obtain your first credit card.
40Choosing a Credit CardBank credit cards are offered through banks and savings and loan associations. Annual fees and finance charges vary widely, so shop around. Shopping around can save you a lot of money.
41Choosing a Credit CardIf you plan on paying off your balance every month, look for a card that has a grace period and carries no annual fee or a low annual fee.
42Choosing a Credit Card(continued) You might have a higher interest rate, but you plan to pay little or no interest anyway.
43Choosing a Credit CardWatch out for creditors that offer low or no annual fees but instead charge a transaction fee every time you use the card. Such charges can add up quickly.
44Choosing a Credit CardIf you plan to carry a balance, look for a card with a low monthly finance charge. Be sure that you understand how the finance charge is calculated
45Smart CardsA smart card is a new kind of card with a computer chip that can store a large amount of data.Smart cards can hold debit and credit card balances, identification information, and much more.
46Disputed PurchasesIf you have a dispute with a credit card purchase, you:do not pay the bill for the disputed item, butnotify the credit card issuer by telephone immediately
47Disputed Purchases The card issuer: must put the disputed amount on holdwill send you a form to fill out explaining the disputewill attempt to resolve the disputewill inform you of the results
48Lost or Stolen Credit Cards You are responsible for only $50 of any unauthorized charges made before you notify the credit card issuer of the loss, theft, or unauthorized use of your card.
49Lost or Stolen Credit Cards You are not responsible for any unauthorized charges made after the company has been notified.
50Credit Card BlockingWhen you use a credit card to rent a car or to check into a hotel, the clerk usually gives an estimated bill to the credit card issuer.
51Credit Card BlockingIf the transaction is approved, your available credit is reduced by this amount immediately. This procedure is called a block. It is used to make sure you don’t exceed your credit.
52Reviewing What You Learned Section AssessmentReviewing What You LearnedWhat is the difference between open-end credit and closed-end credit? Give an example of each.
53Reviewing What You Learned Answer Section AssessmentReviewing What You LearnedAnswerOpen-end credit (credit cards) can be increased by the debtor, up to a limit set by the creditor, by continuing to purchase goods or services on credit.
54Reviewing What You Learned Answer Section AssessmentReviewing What You LearnedAnswerClosed-end credit (car loan) is extended only for a specific amount of money.
55Reviewing What You Learned Section AssessmentReviewing What You LearnedWhat does the Truth-in-Lending Act require lenders to tell you?
56Reviewing What You Learned Answer Section AssessmentReviewing What You LearnedAnswerThe finance charge and the annual percentage rate of the loan.
57Reviewing What You Learned Describe a secured loan. Section AssessmentReviewing What You LearnedDescribe a secured loan.
58Reviewing What You Learned Answer Section AssessmentReviewing What You LearnedAnswerOne in which creditors obtain an interest in something of value, called collateral, from which they can be paid if you do not pay.
59Reviewing What You Learned Section AssessmentReviewing What You LearnedHow much does the average credit card holder have in outstanding credit card debt? What is the average interest rate he or she is paying?
60Reviewing What You Learned Answer Section AssessmentReviewing What You LearnedAnswer$8,000 in credit card debt; 17 percent.
61Critical Thinking Activity Economics Section AssessmentCritical Thinking ActivityEconomicsReact to this statement: “America’s economic strength is in part due to the ability of people to borrow money and make purchases on credit.” Do you agree or disagree? Explain your answer.
62Critical Thinking Activity Answer Economics Section AssessmentCritical Thinking Activity AnswerEconomicsAnswers will vary but could discuss that credit enables consumers to buy expensive durable goods, such as appliances, which is good for the economy.
63Critical Thinking Activity Answer Economics Section AssessmentCritical Thinking Activity AnswerEconomicsAnswers can also discuss that too much credit creates too much consumer debt, which makes less money for investment, which is bad for the economy.
64Legal Skills in Action Responsible Use of Credit Section AssessmentLegal Skills in ActionResponsible Use of CreditMany teenagers use credit cards—either their parents’ or their own. Some teenagers use credit cards for emergencies only; others use them for everyday purchases and activities.
65Legal Skills in Action Responsible Use of Credit Section AssessmentLegal Skills in ActionResponsible Use of CreditWith a partner, debate the role of credit in society today. Explain your philosophy on using credit. Describe how you think credit problems could be prevented.
66Legal Skills in Action Answer Section AssessmentLegal Skills in Action AnswerResponsible Use of CreditDebate and discussion will vary. Accept answers that are well reasoned.