CREDIT

The Need for Credit  Credit is buying now and paying later  Today 80% of purchases are made with credit  Qualifying for Credit  Income- Money that comes in at a regular rate  Financial Position- Financial position is based on capital. Capital is the value of the property that you possess (such as bank accounts, investments, real estate, and other assets) after deducting your debts  Collateral- Property pledged to secure repayment of a loan  Making Payments- You must pay back what you borrowed plus interest

Advantages and Disadvantages of Credit  Expands your purchasing power and raises your standard of living  Provides Emergency Funds  Convenient  You have more power in the event of a dispute  Purchases cost more over time  Merchants pay fees to credit card companies that they pass on to customers  Using future income, so less purchasing power in future  Can lead to overspending

Types of Credit  Open-end credit  Borrower can spend up to a certain amount  Varying payment depending on how much you spend  Ex. Credit cards  Closed-end credit  Loan for a stated amount that must be repaid in full by a certain date  Set payment amount every month  Ex. Car loan  Service Credit  Service is provided in advance and you pay later  Ex. Telephone and utility bills

Sources of Credit  Retail Stores  Department stores (Macy’s, Neiman Marcus) will give you a card that you can use only at that store  Credit Card Companies  Visa, Mastercard, American Express, Discover  Banks and Credit Unions  Closed-end loans for cars, homes, etc.

Sources of Credit  Finance Companies  Makes loans for high risk people at high interest rates  Consumer Finance Companies- loans on durable goods  Sales Finance Companies- loans through authorized reps, such as car dealers  Pawnbrokers  High interest loans based on collateral  Private Lenders  Parents, relatives, friends