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Foundations of Personal Finance Ch. 9

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Presentation on theme: "Foundations of Personal Finance Ch. 9"— Presentation transcript:

1 Foundations of Personal Finance Ch. 9

2 Foundations of Personal Finance Ch. 9
Credit 2

3 Chapter Objectives Explain the __________and disadvantages of using credit. Identify the different ______of consumer credit. Describe how to establish a _______ credit__________. Define the key _______in credit contracts and agreements. continued

4 Chapter Objectives _______credit terms and charges.
________the steps involved in managing credit. __________ steps to take in resolving credit problems. Summarize the ______that govern the use of credit.

5 Understanding Consumer Credit
Credit plays an important role in the economy Provides extra _______ _______ that supports mass _________and distribution Helps make more goods and services available to consumers at _______prices continued

6 Understanding Consumer Credit
Credit is a _________ of ____________ It is an agreement between ____parties ____________ supplies money, goods, or services to the borrower ____________agrees to make future payment by a particular date or according to an agreed-upon schedule continued

7 Understanding Consumer Credit
There is a ______that the borrower cannot repay what is owed Creditors __________risk by having borrowers sign a___________ taking a borrower who _________to ________and even taking back property

8 Foundations of Personal Finance Ch. 9
Reasons to Use Credit Gives you the ___________to buy _______items that you may not be able to buy with cash continued

9 Reasons to Use Credit You can _____ _____ and _______as you pay for them Credit can be used as a ________of ______ for emergencies and unexpected expenses You can take ________of ____ _______ when you don’t have cash continued

10 Reasons to Use Credit ____________eliminates the need to carry a lot of cash provides a purchase__________ __________ ___________ by phone, mail, and Internet You can make purchases that are part of a _____-______ financial ______: education, furniture, vacation

11 Drawbacks of Credit Use
Using credit _______ _______ _______ ________—using credit costs money (finance_________) _________—using credit makes it easy to spend money you don’t have ________of serious consequences—financial problems arise when debts aren’t paid on time and in full

12 Foundations of Personal Finance Ch. 9
Cost of Credit Using credit is ______ _______ than paying with cash continued

13 Cost of Credit Borrowers must pay ________plus finance_________
Finance charges _______ _________ for The ______of making credit available taking the _______ that borrowers may default continued

14 Cost of Credit Creditors
May ________money to make credit available; when they borrow, they must also pay_______________ ______the ________to ________money _______ __________ for opening and servicing credit accounts _______ __________ of unpaid accounts and cost of _________overdue debts

15 Finance Charges Are the dollar amounts paid for credit
Consist of _____ _______: _________and_______ Are expressed as_____________

16 Foundations of Personal Finance Ch. 9
In Your Opinion Have you ever lent money to a friend? Based on your experience, do you think creditors deserve to be paid a finance charge?

17 Annual Percentage Rate (_____)
The _____ the APR, the _____you pay Example: Interest for a $500 loan repaid in 12 monthly payments would cost $50.08 at 18% $58.72 at 21% $67.36 at 24%

18 Amount of Credit Used The ______ _______ you_____, the _____you _____
Example: Interest on a loan repaid in 12 monthly payments at an APR of 18% would cost $50.08 for a $500 loan $ for a $1,000 loan $ for a $2,000 loan

19 Length of Repayment Period
The ______you take to _____what you borrowed, the ____you_____ Example: Interest on a $500 loan at 1.5% per month (18% APR) would cost $50.08 if repaid in 12 monthly payments $99.44 if repaid in 24 monthly payments $ if repaid in 36 monthly payments

20 Foundations of Personal Finance Ch. 9
_______of Credit _____-____ credit must be repaid by a ______ _____ ____-____ credit allows the borrower to use money for an ________ _______

21 Closed-End Credit Most are _______ ______ that let you borrow a given amount of money and repay it with interest in regular installments Examples: student_____, car loans, most home loans continued

22 Closed-End Credit A _____ _____requires_________—finance _____may be _____because creditor can take _________if loan is not repaid An ________ ______—finance ______are usually ______because no collateral; borrower must have strong credit rating or a_________

23 Open-End Credit Borrower can _______to ____ credit if he or she makes ________ _______, pays finance charges, and stays within borrowing limit _________charge accounts ____________credit accounts Offered by retailers, merchants, banks, credit agencies continued

24 Foundations of Personal Finance Ch. 9
Open-End Credit You must make at least the ________ _________ each month Total amount you may owe at any one time is limited

25 __________ Credit Start with a_______ Open a __________account
Apply for a _______card at a local department store or gas company

26 Your Credit Rating ________whether you can get _____and what you will _____for it Is measured by the ____Cs—_________, ___________, and ____________ A ___________applicant is judged to have the______, ________, and tendency to _______debt

27 The Credit Report ______major national agencies ____ credit ______to____________ _____agency ________ __________ about financial and credit transactions The information on these reports often_________ Carefully _______your credit reports and report errors to agencies continued

28 Foundations of Personal Finance Ch. 9
The Credit Report The report lists _____credit ______ever_________ Outstanding________ _______ _____, such as _____payments, _______ _____, _______________

29 Credit_______ A credit score is a numerical _________of a loan applicant’s________________ The _______the score, the __________a person’s__________________ The ______the score, the more ________you will have ______ _______ The _____ _________ credit will be continued

30 Credit Scores Credit score factors:
Bill_____________ _______ -to-__________-limit-_________ Credit _______ __________ Recent credit application Different types of credit You may have more than one credit score generated by different agencies

31 Foundations of Personal Finance Ch. 9
Getting a Credit Card Common types of credit cards include _______-purpose company or _______store travel and____________

32 Shopping for a Credit Card
_________possible _____,__________, and consequences of failing to carry out the terms of the agreement Be wary of __________clauses, _________payments, and add-on clauses

33 Foundations of Personal Finance Ch. 9
The Contract _______the ___________(application) thoroughly before signing it

34 Disclosures Annual percentage rates: What is the______?
_____ _____ will a lower __________ _____ last? What is the ______ _____? Can the rate be raised for any reason? Is the rate fixed or variable? continued

35 Disclosures What is the ______period?
What ________is used to calculate the interest rate? Is there an ______ _____? If so, how much? What are fees for late payments exceeding credit limit cash advances balance transfers

36 ___________Credit Cards
_______to get; offered to those with _______ _______ histories Often carry _____ ______ rates, _____ annual______, and other charges ______ credit _________ Often a ____ ________ for consumers

37 Foundations of Personal Finance Ch. 9
Managing Your Credit _____your financial _______________. What are your money attitudes and_________? continued

38 _________Your Credit Keep track of__________ Create a____________
Don’t use more credit than you can pay off each month _______your _________and keep a _____of credit charges

39 Remember _________to Using__________
______to buy Pay with___________ _________buying now and buy later with cash

40 Check Monthly Statements
Foundations of Personal Finance Ch. 9 Check Monthly Statements Check statements against your own record of charges, payments, and credits

41 Check Your Credit Report Regularly
Foundations of Personal Finance Ch. 9 Check Your Credit Report Regularly Find and ______ ______ immediately Make sure no one has applied for credit in your_________

42 Report Lost or Stolen Cards
______a _____of your credit cards—issuers, account numbers, issuer phone numbers ______ _____ or stolen _____right away If your card is lost or stolen, you are responsible for $____ per card that is charged by others no charges made by others if you notify the issuer before the card is used

43 Handling Credit Problems
Poor credit use consequences: ________to get _______ and credit cards Paying ______ ________ rates for credit Having _______ _________ _________ Having _______ ______ prospects because many employers check credit reports Paying ________ _________ premiums continued

44 Handling Credit Problems
Blemishes on credit reports: Accurate negative information, such as missed or late payments, may remain on your report for ________ _______ Bankruptcies may remain on your report for _____years continued

45 Foundations of Personal Finance Ch. 9
In Your Opinion Would you cosign a loan for your best friend or a family member if doing so would endanger your credit rating?

46 Handling Credit Problems
Actions taken to recover debts: __________are hired to get _____________ ___________of property, including_____________ ________ against property Wage___________________

47 ______________ Desperate debtors _____ ______—file for personal bankruptcy ________ ________ _______ from repaying some or all debt _________ _______ up certain _______ and possessions Two types—Chapter ___and Chapter__ Consequences of bankruptcy are severe

48 The Easy-Access Credit Trap
______-access credit includes _______ loans ___________________ ______________ __________ loans A ______shark is someone who uses predatory lending tactics and easy-access credit

49 Foundations of Personal Finance Ch. 9
______ ____________ They may change payment dates and amounts if you have trouble paying bills

50 Get Credit____________
Use reputable nonprofit credit counseling services Avoid credit counseling firms that charge high fees demand that the debtor pay them rather than their creditors

51 Consumer Credit Legislation
______in ______ ____ requires creditors to tell consumers what credit will_____ ______Credit ________ Act prohibits creditors from __________against consumers _____Credit _______Act requires ________and _________ of credit report information continued

52 Consumer Credit Legislation
Fair Credit Billing Act protects consumers from unfair billing practices Electronic Funds Transfer Act protects consumers in EFT transactions Fair Debt Collection Practices Act protects consumers against unfair methods of collecting debts continued

53 Consumer Credit Legislation
Preservation of Consumers’ Claims and Defenses Ruling ______ ______ who have a legitimate ______with a seller Bankruptcy Abuse Prevention and Consumer Protection Act was meant to increase fairness of the bankruptcy system makes filing for bankruptcy more________

54 Central Ideas of the Chapter
Credit is a powerful financial management tool. Serious financial problems result from the misuse of credit.

55 Glossary of Key Terms Back annual percentage rate (APR). The annual cost of credit a lender charges. bankruptcy. A legal state in which the courts excuse a debtor from repaying some or all debt. In return, the debtor must give up certain assets and possessions. closed-end credit. A loan that must be repaid with finance charges by a certain date.

56 Glossary of Key Terms Back collateral. Property that a borrower promises to give up in case of default. contract. A legally binding agreement between a borrower and a creditor. cosigner. A responsible person who signs a loan along with a borrower thereby agreeing to pay the obligation if the borrower fails to do so.

57 Glossary of Key Terms Back credit. An arrangement that allows consumers to buy goods or services and pay for them later. credit card. Allows consumers to make purchases or borrow money on a time-payment plan. creditor. The party that supplies money, goods, or services in a credit agreement.

58 Glossary of Key Terms Back credit report. A record of a person’s credit history and financial behavior. creditworthy. A credit applicant judged to have the assets, income, and tendency to repay debt. default. When a borrower fails to pay the debt owed.

59 Glossary of Key Terms Back easy-access credit. A short-term, high-interest loan granted to borrowers regardless of credit history. foreclosure. The forced sale of a property. garnishment. A legal procedure requiring a portion of a debtor’s pay to be set aside by the person’s employer to pay creditors.

60 Glossary of Key Terms Back grace period. The time between the billing date and the start of interest charges. lien. A legal claim on a borrower’s property by a creditor who is owed money. loan shark. Someone who loans money at excessive rates of interest. open-end credit. Allows the borrower to use a certain amount of money for an indefinite period of time.

61 Glossary of Key Terms Back pawnshop. A business that gives customers high-interest loans with personal property, such as jewelry, held as collateral. payday loan. A short-term, high interest loan that must usually be repaid on the borrower’s next payday. principal. The amount borrowed on a loan.

62 Glossary of Key Terms Back rent-to-own. A credit arrangement in which a consumer pays rent for the use of a product and eventually owns it. repossession. A lender takes back collateral when a borrower fails to repay a loan. secured loan. A loan that requires collateral. title loan. A loan made using the borrower’s car as collateral.

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