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  Credit is an arrangement to receive cash, goods, or services now and pay for them later  Financial institutions and merchants issue credit – called.

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Presentation on theme: "  Credit is an arrangement to receive cash, goods, or services now and pay for them later  Financial institutions and merchants issue credit – called."— Presentation transcript:

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2   Credit is an arrangement to receive cash, goods, or services now and pay for them later  Financial institutions and merchants issue credit – called a creditor  Having the ability to borrow funds that we normally could not pay for with cash  Homes, cars, education, appliances, electronics  Using credit wisely keeps people out of trouble What is credit and why is it so important to have good credit?

3   Do you have the cash you need for the down payment  Do you want to use your savings instead of credit?  Can you afford the item?  Could you use the credit in some better way?  Could you put off buying the item for a while?  What are the costs of using credit? Factors to Consider Before Using Credit

4   2 basic types  Closed-end credit  One-time loan that you will pay back over a specified period of time in payments of equal amounts  Is used for specific purpose and involves a definite amount of money  Open-end credit  Is a loan with a certain limit on the amount of money you can borrow – line of credit Types of Credit

5   Loans  Inexpensive loans with low interest – parents, family members, friends  Medium-Priced Loans with moderate interest – banks, credit unions  Expensive loans with high interest – finance companies, retail stores  Credit Cards  Use money over time and pay it back  Grace period – a time period with no finance charge  Finance charge – total $$ amount you pay to use credit Sources of Consumer Credit

6   Annual Percentage Rate (APR) is the cost of credit on a yearly basis, expressed as a percentage  Variable Interest Rate – changes throughout the term of the credit issued  Fixed Interest Rate – stays the same throughout the term of the credit used  Simple Interest – is the interest computed only of the principal (which is the amount you borrowed) The Cost of Credit

7  1.Character: Will you repay the loan? 2.Capacity: Can you repay the loan? 3.Capital: What are our assets and net worth? 4.Collateral: What if you do not repay the loan? 5.Credit History: what is your history with using credit?  Credit Rating – is a measure of a person’s ability and willingness to make credit payments on time.  Credit Bureaus – an agency that collects information on how businesses and people pay their bills.  Experian, Trans Union, Equifax Applying for Credit “The 5 C’s of Credit”

8   Making only the minimum payment each month  Having trouble making the minimum payment  Miss loan payments or pay late  Use your savings for necessities such as food and utilities  You borrow money to pay off old debts  You exceed credit limits on your credit cards  Been denied credit because of a bad credit report Managing Debt The Warning Signs

9   Consumer Credit Counseling Service  Counseling Services through banks, military, credit unions  Counseling through state and federal housing authorities  Bankruptcy What are your options?

10   A legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts  It may also include a plan for the debtor to repay creditors  LAST RESORT!!! Bankruptcy

11   Chapter 7  A.k.a. “straight bankruptcy”  Most of the debtors assets are sold of to pay the debt owed  Certain assets are protected – Social Security, unemployment, net value of home or car, tools used for employment  Chapter 13  A debtor with regular income can work with the court to devise a payment plan  Not all assets are lost Types of Bankruptcy

12   Credit can be very difficult to obtain  You are forced to pay very high interest rates on loans  May not be able to get a credit card  Bad credit can keep you from  Getting a job  Renting or buying a residence  Buying a car Effects of Bankruptcy


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