© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE Credit Fundamentals Cost of Credit Credit Application and Documents Protection of Credit Rights 18 C H A P T E R Consumer Credit

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 2 USING CREDIT ●Credit is the privilege of using someone else’s money for a period of time ●Two parties ●Debtor ●Creditor ●Trust

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 3 TYPES OF CREDIT ●Trade credit ●Loan credit ●Installments ●Sales credit

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 4 CHARGE ACCOUNTS ●Regular accounts ●Budget accounts ●Revolving accounts ●Credit limit ●Payments ●Finance charge

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 5 CREDIT CARDS ●Bank cards ●Travel and entertainment cards ●Oil company cards ●Retail store cards

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 6 FEATURES OF INSTALLMENT CREDIT ●Signing a sales contract that shows the terms of the purchase ●Receiving the purchased item at the time of the sale ●Making a down payment ●Paying a finance charge on the amount owed ●Making regular payments at stated times

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 7 CONSUMER LOANS ●Installment loan ●Single payment loan ●Promissory note ●Collateral ●Secured loan ●Cosigner

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 8 BENEFITS OF CREDIT ●Convenience ●Immediate possession ●Savings ●Credit rating ●Useful for emergencies

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 9 CREDIT CONCERNS ●Overbuying ●Careless buying ●Higher prices ●Overuse of credit

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 10 QUESTIONS TO ASK ●How will you benefit from this use of credit? ●Is this the best buy you can make or should you shop around? ●What will be the total cost of your purchase, including the finance charges? ●What would you save if you paid cash? ●Will the payments be too high for your income?

© 2012 Cengage Learning. All Rights Reserved. SLIDE Cost of Credit Goal 1Calculate interest in consumer credit situations. Goal 2Explain finance charges when using credit.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 12 FINDING INTEREST ●Principal, P ●Amount of the loan ●Interest Rate, R ●Percent of interest charged or earned ●Time, T ●Length of time for which interest will be charged, usually expressed in years or parts of a year

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 13 SIMPLE INTEREST Interest  Principal  Rate  Time IPRT

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 14 SIMPLE INTEREST EXAMPLES IPRT One yearI  $100 .12  1  $12 Two yearsI  $100 .12  2  $24 One monthI  $100 .12  1/12  $1 60 daysI  $100 .12  60/360  $2

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 15 MATURITY DATES ●Maturity date is the date on which a loan must be repaid. ●Time stated in months ●One-month loan made on January 15 is due on February 15 ●Two-month loan made on January 15 is due on March 15 ●Time stated in days ●90-day loan made on March 4 is due on June 2

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE DAY LOAN EXAMPLE ●Determine maturity date for a 90-day loan made on March 4 ●Find the number of days remaining in March ●Add days until you reach 90 days ●Due date is June 2 March27 days(31–4) April30 days May31 days June 2 days Total90 days

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 17 INSTALLMENT INTEREST ●Decreasing loan payments ●Level loan payments

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 18 AMORTIZATION SCHEDULE

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 19 FINANCE CHARGES ●Annual percentage rate (APR) ●Total dollar charges ●Compare credit costs

© 2012 Cengage Learning. All Rights Reserved. SLIDE Credit Application and Documents Goal 1Explain the credit application process. Goal 2Describe the activities of a credit bureau. Goal 3Discuss commonly used credit documents.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 21 CREDIT APPLICATION PROCESS ●The three Cs of credit ●Character ●Capacity ●Capital ●Credit applications ●Documenting credit data ●Actions to establish credit

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 22 CREDIT BUREAU ●Gathers information on credit users ●Transunion, Equifax, Experian ●Sells information to businesses offering credit, such as banks, finance companies, and retail stores ●Creates a credit report showing debts owed, how often credit is used, and whether debts are paid on time

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 23 MAIN COMPONENETS OF A CREDIT REPORT ●Personal information ●Public records ●Adverse accounts ●Accounts in good standing ●Credit history requests ●Personal statement

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 24 CREDIT DOCUMENTS ●Credit contracts ●Statement of account ●Accuracy of records ●Avoiding fraud

© 2012 Cengage Learning. All Rights Reserved. SLIDE Protection of Credit Rights Goal 1Identify credit application regulations. Goal 2Explain credit use regulations. Goal 3Discuss credit problems and available assistance.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 26 CREDIT APPLICATION REGULATIONS ●Truth-in-Lending Act of 1968 ●Credit Card Act of 2009 (CARD) ●Equal Credit Opportunity Act

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 27 Checkpoint ●How does the Truth-in-Lending Act assist consumers? ●The Truth-in-Lending Act assists consumers by requiring that they be fully informed of all of the costs of credit before signing an agreement. ●Borrowers must be informed of the annual percentage rate and total finance charge. ●The Act also limits consumers’ liability for unauthorized use of credit cards to $50 for unauthorized purchases made prior to notifying the card issuer, and cardholders are not liable for any purchases made after notifying the credit card company.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 28 CREDIT USE REGULATIONS ●Fair Credit Billing Act ●Fair Credit Reporting Act ●Consumer Credit Reporting Reform Act ●Fair Debt Collection Practices Act

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 29 Checkpoint ●What is the purpose of the Fair Credit Reporting Act? ●The purpose of the Fair Credit Reporting Act is to give consumers the right to know what information credit bureaus are giving to potential creditors, employers, and insurers. ●The Act requires credit bureaus to keep records for both a husband and wife if both are responsible for the debt so that each spouse can develop a credit history. ●It also requires credit bureaus to delete information dealing with a personal bankruptcy that is more than 10 years old and any other adverse information that is more than 7 years old.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 30 CREDIT PROBLEMS AND ASSISTANCE ●What are the first steps people should take when they cannot pay their bills? ●Contact creditors and explain the situation ●Make a realistic proposal for making payments including when and amount ●Keep any promises made ●Make a written copy of the agreement ●Credit counseling ●Bankruptcy

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 18 SLIDE 31 Checkpoint ●What actions can a person take when facing credit problems? ●A person can contact creditors and explain the situation, make a realistic proposal, keep any promises made, and make a written copy of agreements. ●A person with credit problems may be able to work out a debt repayment plan. ●He or she could also contact a credit counselor for advice. ●Bankruptcy is a final option for extreme debt situations.