1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 1 18-1 18-1Credit Fundamentals 18-2 18-2Cost of Credit 18-3 18-3Credit Application and Documents 18-4 18-4Protection of Credit Rights 18 C H A P T E R Consumer Credit

2. © 2012 Cengage Learning. All Rights Reserved. SLIDE 2 18-1 Credit Fundamentals Goal 1Identify the types of consumer credit. Goal 2Describe the benefits of using credit. Goal 3Explain some disadvantages of using credit.

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 3 KEY TERMS ●credit ●finance charge ●down payment ●installment loan ●promissory note ●collateral ●cosigner ●credit rating

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 4 USING CREDIT ●Credit is the privilege of using someone else’s money for a period of time ●Two parties ●Debtor ●Creditor ●Trust

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 5 TYPES OF CREDIT ●Trade credit ●Loan credit ●Installments ●Sales credit

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 6 CHARGE ACCOUNTS ●Regular accounts ●Budget accounts ●Revolving accounts ●Credit limit ●Payments ●Finance charge

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 7 CREDIT CARDS ●Bank cards ●Travel and entertainment cards ●Oil company cards ●Retail store cards

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 8 FEATURES OF INSTALLMENT CREDIT ●Signing a sales contract that shows the terms of the purchase ●Receiving the purchased item at the time of the sale ●Making a down payment ●Paying a finance charge on the amount owed ●Making regular payments at stated times

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 9 CONSUMER LOANS ●Installment loan ●Single payment loan ●Promissory note ●Collateral ●Secured loan ●Cosigner

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 10 Checkpoint ●What are the major types of consumer credit? ●The major types of consumer credit are loan credit and sales credit.

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 11 BENEFITS OF CREDIT ●Convenience ●Immediate possession ●Savings ●Credit rating ●Useful for emergencies

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 12 Checkpoint ●What are the main advantages of consumer credit? ●The main advantages of consumer credit are convenience (shopping without carrying cash), immediate possession of items bought on credit, savings (when stores offer special prices to credit customers), the chance to build a favorable credit rating, and for emergencies.

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 13 CREDIT CONCERNS ●Overbuying ●Careless buying ●Higher prices ●Overuse of credit

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 14 QUESTIONS TO ASK ●How will you benefit from this use of credit? ●Is this the best buy you can make or should you shop around? ●What will be the total cost of your purchase, including the finance charges? ●What would you save if you paid cash? ●Will the payments be too high for your income?

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 15 Checkpoint ●What are potential drawbacks of buying on credit? ●Potential drawbacks of buying on credit include overbuying, careless buying, paying higher prices, and overuse of credit.

16. © 2012 Cengage Learning. All Rights Reserved. SLIDE 16 18-2 Cost of Credit Goal 1Calculate interest in consumer credit situations. Goal 2Explain finance charges when using credit.

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 17 KEY TERMS ●interest ●annual percentage rate (APR)

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 18 FINDING INTEREST ●Principal, P ●Amount of the loan ●Interest Rate, R ●Percent of interest charged or earned ●Time, T ●Length of time for which interest will be charged, usually expressed in years or parts of a year

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 19 SIMPLE INTEREST Interest  Principal  Rate  Time IPRT

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 20 SIMPLE INTEREST EXAMPLES IPRT One yearI  $100 .12  1  $12 Two yearsI  $100 .12  2  $24 One monthI  $100 .12  1/12  $1 60 daysI  $100 .12  60/360  $2

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 21 MATURITY DATES ●Maturity date is the date on which a loan must be repaid. ●Time stated in months ●One-month loan made on January 15 is due on February 15 ●Two-month loan made on January 15 is due on March 15 ●Time stated in days ●90-day loan made on March 4 is due on June 2

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 22 90-DAY LOAN EXAMPLE ●Determine maturity date for a 90-day loan made on March 4 ●Find the number of days remaining in March ●Add days until you reach 90 days ●Due date is June 2 March27 days(31–4) April30 days May31 days June 2 days Total90 days

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 23 INSTALLMENT INTEREST ●Decreasing loan payments ●Level loan payments

24. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 24 AMORTIZATION SCHEDULE

25. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 25 Checkpoint ●What three things are necessary to calculate interest? ●To calculate interest, you must know the principal (amount of the loan), the interest rate, and the length of time for which interest will be charged.

26. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 26 FINANCE CHARGES ●Annual percentage rate (APR) ●Total dollar charges ●Compare credit costs

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 27 Checkpoint ●What does APR represent? ●APR represents the annual percentage rate, which is the percentage cost of credit on a yearly basis. ●This disclosure is required by law.

28. © 2012 Cengage Learning. All Rights Reserved. SLIDE 28 18-3 Credit Application and Documents Goal 1Explain the credit application process. Goal 2Describe the activities of a credit bureau. Goal 3Discuss commonly used credit documents.

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 29 KEY TERMS ●credit application ●credit bureau ●statement of account

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 30 CREDIT APPLICATION PROCESS ●The three Cs of credit ●Character ●Capacity ●Capital ●Credit applications ●Documenting credit data ●Actions to establish credit

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 31 Checkpoint ●What are the three Cs of credit? ●Character ●Capacity ●Capital

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 32 CREDIT BUREAU ●Gathers information on credit users ●Sells information to businesses offering credit, such as banks, finance companies, and retail stores ●Creates a credit report showing debts owed, how often credit is used, and whether debts are paid on time

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 33 MAIN COMPONENETS OF A CREDIT REPORT ●Personal information ●Public records ●Adverse accounts ●Accounts in good standing ●Credit history requests ●Personal statement

34. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 34 Checkpoint ●What is the main purpose of a credit bureau? ●The main purpose of a credit bureau is to gather information on credit users and report the facts in credit reports that it sells to businesses that offer credit.

35. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 35 CREDIT DOCUMENTS ●Credit contracts ●Statement of account ●Accuracy of records ●Avoiding fraud

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 36 SAMPLE CREDIT CARD STATEMENT

37. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 37 Checkpoint ●What are the main items reported on a statement of account? ●The main items reported are the balance due, the amounts charged during the month, the amounts credited for payments or returned items, the current balance, and the minimum amount due.

38. © 2012 Cengage Learning. All Rights Reserved. SLIDE 38 18-4 Protection of Credit Rights Goal 1Identify credit application regulations. Goal 2Explain credit use regulations. Goal 3Discuss credit problems and available assistance.

39. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 39 KEY TERMS ●credit counselor ●bankruptcy

40. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 40 CREDIT APPLICATION REGULATIONS ●Truth-in-Lending Act of 1968 ●Credit Card Act of 2009 (CARD) ●Equal Credit Opportunity Act

41. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 41 Checkpoint ●How does the Truth-in-Lending Act assist consumers? ●The Truth-in-Lending Act assists consumers by requiring that they be fully informed of all of the costs of credit before signing an agreement. ●Borrowers must be informed of the annual percentage rate and total finance charge. ●The Act also limits consumers’ liability for unauthorized use of credit cards to $50 for unauthorized purchases made prior to notifying the card issuer, and cardholders are not liable for any purchases made after notifying the credit card company.

42. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 42 CREDIT USE REGULATIONS ●Fair Credit Billing Act ●Fair Credit Reporting Act ●Consumer Credit Reporting Reform Act ●Fair Debt Collection Practices Act

43. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 43 Checkpoint ●What is the purpose of the Fair Credit Reporting Act? ●The purpose of the Fair Credit Reporting Act is to give consumers the right to know what information credit bureaus are giving to potential creditors, employers, and insurers. ●The Act requires credit bureaus to keep records for both a husband and wife if both are responsible for the debt so that each spouse can develop a credit history. ●It also requires credit bureaus to delete information dealing with a personal bankruptcy that is more than 10 years old and any other adverse information that is more than 7 years old.

44. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 44 CREDIT PROBLEMS AND ASSISTANCE ●What are the first steps people should take when they cannot pay their bills? ●Contact creditors and explain the situation ●Make a realistic proposal for making payments including when and amount ●Keep any promises made ●Make a written copy of the agreement ●Credit counseling ●Bankruptcy

45. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 45 Checkpoint ●What actions can a person take when facing credit problems? ●A person can contact creditors and explain the situation, make a realistic proposal, keep any promises made, and make a written copy of agreements. ●A person with credit problems may be able to work out a debt repayment plan. ●He or she could also contact a credit counselor for advice. ●Bankruptcy is a final option for extreme debt situations.