Presentation on theme: "Introduction to Business and Marketing Chapter 26.2."— Presentation transcript:
Introduction to Business and Marketing Chapter 26.2
There are several similarities and differences between credit cards, installment loans, and mortgages. Keeping a good credit rating is important if the consumer is interested in getting loans at a reasonable cost.
Loans and mortgages are similar to other types of credit They allow consumers to borrow money that will be paid back with interest
A loan is money lent by one party to another with interest, usually requiring collateral. A mortgage is a loan agreement secured by property, usually the item that the mortgage is for, such as a home.
Installment or mortgage loans can have a variable rate of interest or a fixed rate of interest. Variable Rate an interest rate that fluctuates or changes over the life of the loan Fixed Rate an interest rate that stays the same over the life of the loan
Installment and mortgage loans usually require the applicant to give a down payment. On a simple interest loan, interest is based on the original principal alone Down Payment a portion of the total cost that is paid when a product or service is purchased Principal the amount of borrowed money that is still owed and on which interest is based
A finance charge includes the interest and any other charges, such as the application fee. Finance Charge the total amount it costs the borrower to have the lender finance the loan
A mortgage is an example of a secured loan. A credit card debt is an example of an unsecured loan. Secured loans usually carry a lower interest rate. Secured Loan a loan that is backed by collateral Unsecured Loan a loan that is not backed by collateral
To continue using credit or to get new credit, you need to maintain a good credit rating score. To get the best credit rating, you need to pay your bills on time.
Experts say consumers should not use more than 20% of their income for credit payments
Your Income $2,000 per month $1,500 after taxes You should not use more than 20 percent of your income for credit payments. Your Debt $120 for Student Loans $160 for Car Payments Your Wants A new entertainment center for $50 per month for three years Can You Afford It? No Your total payments each month would be $330, or 22 percent of your take-home pay. Remember
1.You cannot make monthly loan payments and minimum monthly payments on your credit cards. 2.You receive second and third payment-due notices. 3.You get calls from bill collectors.