1. Financial Algebra © Cengage/South-Western Slide 1 CONSUMER CREDIT 4-1Introduction to Consumer Credit 4-2Loans 4-3Loan Calculations and Regression 4-4Credit Cards 4-5Credit Card Statement 4-6 Average Daily Balance 4

2. Financial Algebra © Cengage/South-Western Slide 2 4-4 CREDIT CARDS Become familiar with the basic vocabulary of credit cards. Compute an average daily balance. OBJECTIVES

3. Financial Algebra © Cengage Learning/South-Western Slide 3 credit card impulse buying revolving charge account charge card Truth-in-Lending Act Fair Debt Collection Practices Act Fair Credit Billing Act debit card Electronic Funds Transfer Act average daily balance mean Key Terms

4. Financial Algebra © Cengage Learning/South-Western Slide 4 What do I need to know to use credit cards? What are the monthly responsibilities of a credit card holder? Why might a customer prefer to shop at a store that accepts credit cards over a store that does not accept credit cards?

5. Financial Algebra © Cengage Learning/South-Western Slide 5 Example 1 Frank lost his credit card in a local mall. He notified his creditor before the card was used. However, later in the day, someone found the card and charged $700 worth of hockey equipment on it. How much is Frank responsible for paying? Hint: read the information on the Truth-in-Lending Act.

6. Financial Algebra © Cengage Learning/South-Western Slide 6 Carreen’s credit card was stolen. She didn’t realize it for days, at which point she notified her creditor. During that time, someone charged $2,000. How much is Carrie responsible for paying? #2 and #3 CHECK YOUR UNDERSTANDING APPLICATIONS, p. 197

7. Financial Algebra © Cengage Learning/South-Western Slide 7 Example 2 Credit card companies issue a monthly statement, therefore APR (annual percentage rate) must be converted to a monthly percentage rate. If the APR is 21.6%, what is the monthly interest rate? Hint: how many months are in one year?

8. Financial Algebra © Cengage Learning/South-Western Slide 8 If a monthly statement shows a monthly interest rate of x percent, express the APR algebraically. #4 CHECK YOUR UNDERSTANDING APPLICATIONS, p. 197

9. Financial Algebra © Cengage Learning/South-Western Slide 9 EXAMPLE 3 Rebecca did not pay last month’s credit card bill in full. Below is a list of Rebecca’s daily balances for her last billing cycle. For seven days she owed $456.11. For three days she owed $1,177.60. For six days she owed $990.08. For nine days she owed $2,115.15. For five days show owed $2,309.13. Find Rebecca’s average daily balance.

10. Financial Algebra © Cengage Learning/South-Western Slide 10 Last month, Paul had a daily balance of x dollars for 6 days, y dollars for 12 days, w dollars for q days, and d dollars for 2 days. Express the average daily balance algebraically. #5 #6 CHECK YOUR UNDERSTANDING APPLICATIONS, p. 197

11. Financial Algebra © Cengage Learning/South-Western Slide 11 #5 6 * #6 APPLICATIONS, p. 197

12. Financial Algebra © Cengage Learning/South-Western Slide 12 EXAMPLE 4 Rebecca (from Example 3) pays a finance charge on her average daily balance of $1,441.60. Her APR is 18%. What is her finance charge for this billing cycle?

13. Financial Algebra © Cengage Learning/South-Western Slide 13 Steve owes a finance charge this month because he didn’t pay his bill in full last month. His average daily balance is d dollars and his APR is p percent. Express his finance charge algebraically. APPLICATIONS, p. 197 #8 Jared’s average daily balance for last month was $560. The finance charge was $8.12.  What was the monthly percentage rate?  What is the APR? CHECK YOUR UNDERSTANDING

14. Financial Algebra © Cengage Learning/South-Western Slide 14 HINT: monthly rate% * average daily balance = finance charge  Isolate the monthly rate%  Mo. Rate% * average daily balance = finance charge average daily balance = avg. daily balance  Mo. Rate% = finance charge avg. daily balance  = 8.12 = 0.0145 = 1.45% 560  Mo. Rate% * 12 = APR%  1.45% * 12 = 17.4% APR APPLICATIONS, p. 197 #8

15. Financial Algebra © Cengage Learning/South-Western Slide 15 Do all questions: Determine Finance Charge #9 #11 #17 Truth in Lending Act #14 #16 APPLICATIONS, p. 198-199