Presentation on theme: "Applied Business Practices Chapter 18. Warm-Up Answer the following in three or more complete sentences Besides a student loan, what other types of loans."— Presentation transcript:
Applied Business Practices Chapter 18
Warm-Up Answer the following in three or more complete sentences Besides a student loan, what other types of loans might you need to apply for in the next few years?
Warm-Up When you hear the word “credit” what do you think of? How do you think consumer credit affects the economy?
Credit –Borrowing money with the promise to repay in the future
Credit Terms Credit Limit –Maximum amount that may be owed at one time Finance Charge –Total dollar cost of credit including interest and all other charges
Credit Card Allows you to buy now, pay later
Types of Credit Cards Bank Cards –Visa or Master Card Most common Travel and Entertainment –Diner’s Club, American Express Pay yearly membership fee and pay full balance when bill comes
Types of Credit Cards Oil Company Cards –Cards offered by oil companies Retail Store Cards –Cards offered by a specific retail store that can only be used at that store
Warm-up 1.When is using credit a good idea? How can you tell when taking out a loan is not a good idea?
Installment Credit Make monthly payments in specific amounts over a period of time. –examples = car payments, mortgage
Benefits of Credit Convenience Immediate possession Savings Credit Rating Useful for Emergencies
Help with Credit Collateral –Property pledged to back a loan Example: a car is the collateral for a car loan Co-signer –Agrees to pay the loan if the signor does not Example: your parents co-sign your first car loan
Questions to Ask How will you benefit from the use of the credit? Is this the best buy you can make or should you shop around? What will be the total cost of your purchase including finance charges? What would you save if you paid cash? Will the payments be too high for your income?
Warm-Up Convert each of the following percents to decimals: 40%5%3.5%9%112% Convert each of the following decimals to a percent:
Simple Interest Interest –The cost of borrowing money Principal –Amount of the loan Rate –Percent of interest charged Time –Length of time for which interest will be charged
Simple Interest Formula: I = PxRxT Example: borrow $10,000 at an APR of 6% for 4 years I = 10,000 x.06 x 4 = 2,400 Total loan = 12,400
Warm-Up Calculate the amount of interest for each of the following loans –$6,000 borrowed for 1 year at 7% –$2,000 borrowed for 4 years at 8% –$1,000 borrowed for 2 years at 6%
Credit Worthiness Your reliability to repay a loan
The Three C’s of Credit Character –Willingness to repay Capacity –Ability to repay the debt Capital –Value of your assets
Review What is the total cost of credit? Give an example of a travel/entertainment card. Give an example of revolving credit What is the formula for interest?
Warm-Up How can you establish Credit?
Example Dear Freebie: Wow, it’s a good thing you are in college…you have a lot to learn, especially about credit. These companies offer free stuff because they want you to sign up for their credit….and you will have to pay interest if you carry a balance. They know that college kids are good “targets” because most of you don’t have jobs to pay back the credit…thus they can charge you interest. So they afford this free stuff from interest that people (like you) will have to pay. Cancel the accounts because you are not ready for credit. Signed: Credit Expert
The Credit Application form you provide information needed by a lender to make a decision about granting credit
Establish Credit Good record of grades and attendance Start a checking and/or savings account and make regular deposits Make small credit charges and pay on time Have a steady job (part-time or full-time)
Reporting Agencies Credit Bureau –Company that gathers information on credit users and sells the information to banks and other lenders Credit Report –shows the debts you owe, how often you use credit and whether you pay your debts on time
Warm-Up Why is good credit important to a landlord? Who else might request a copy of your credit report?
Before you sign… finance charges include costs of services any add-ons feature so you can buy other items later Pay-in full before end of contract – any discounts Draw a line through any blank spaces Make sure you will get a copy Repossession
Statement of Account Record of the transactions completed during the billing period
How to Avoid Credit Card Fraud Check statements very carefully for errors Compare statements with your receipts Verify payments and other credits If there are errors, notify creditor immediately
Warm-Up Complete the Loan Comparison Worksheet
Credit Protection Truth in Lending –Must provide the total cost of credit before signing an agreement Equal Credit Opportunity Act –Prohibits creditors from denying a person credit because of age, race, gender, or marital status Fair Credit Billing Act –Requires prompt correction of billing mistakes
Credit Protection Fair Credit Reporting Act –Gives consumers the right to know what information credit bureaus are reporting Consumer Credit Reporting Reform Act –Now the burden of proof of unfavorable credit is now on the credit reporting agency not the consumer Fair Debt Collecting Act –bans threats and other inappropriate actions when a creditor is trying to collect debt
Warm-Up Read “A Question of Ethics” page 471 Answer #1 in complete sentences
When you cannot pay Contact your creditor first Make a realistic proposal for when and what you can pay Keep any promises Make a written copy of your agreement
Credit Counseling Help to reduce spending and eliminate credit difficulties
Bankruptcy Legal process of reducing or eliminating an amount owed Chapter 7 –Wipes out most of your debt you still may have to pay certain other debts such as taxes, child support, etc. Chapter 13 –Repayment Plan you pay your debt back within a specific time allotted most interest charges are stopped
Warm-Up What are some reasons that a loan application would be turned down?
Warm-Up Create a list of questions that a credit counselor might ask when meeting with a person having credit problems.
Warm-up Before you sign a credit contract, what two questions should you consider?