Section 1: Use of Credit.  Credit: Receiving money with the promise to pay in the future ◦ Principal: The Original amount of the loan ◦ Interest: Amount.

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Presentation transcript:

Section 1: Use of Credit

 Credit: Receiving money with the promise to pay in the future ◦ Principal: The Original amount of the loan ◦ Interest: Amount charged for use of someone else’s money

1. Installment Credit  Monthly payment amounts are often set for the life of the loan.  Most common type of Debt  Typically used for large purchases such as a car.

2. Credit Cards > No payoff deadline > Some types of cards can be used just about anywhere. > Monthly minimum payments vary > Usually the most expensive type of credit.

3. Student Loans - Used for tuition and other college expenses - Loan term is usually up to 10 years - Monthly payment amounts are usually set annually, when interest rates are adjusted. - Usually has a lower interest rate than an installment loan. - May provide an income tax break

4. Mortgage - Used specifically for a loan to purchase a house. - Usually repaid over years. - Usually has a lower interest rate than an installment loan. - May provide income tax break.

 The cost of using Credit is the INTEREST ◦ Will your satisfaction be greater than the interest cost ◦ Always shop around for the best interest rate ◦ Make sure you can afford to borrow now  Ex. I lost my job, Should I buy a new TV

1. Convenience 2. Protection 3. Emergencies 4. Opportunity to build credit rating 5. Quicker Gratification 6. Special offers 7. Bonuses

1. Interest 2. Overspending 3. Debt 4. Identity Theft