Introduction to Business © Thomson South-Western ChapterChapter Consumer Credit Credit Fundamentals Cost of Credit Credit Application and Documents Protection of Credit Rights 18

Introduction to Business © Thomson South-Western Chapter 18 Slide 2 LESSON 18-1 Credit Fundamentals Goals Identify the types of consumer credit. Describe the benefits of using credit. Explain some disadvantages of using credit.

Introduction to Business © Thomson South-Western Chapter 18 Slide 3 Key Terms credit finance charge down payment installment loan promissory note collateral cosigner credit rating

Introduction to Business © Thomson South-Western Chapter 18 Slide 4 USING CREDIT Credit Debtor Creditor

Introduction to Business © Thomson South-Western Chapter 18 Slide 5 TYPES OF CREDIT Trade credit Loan credit Installments Sales credit

Introduction to Business © Thomson South-Western Chapter 18 Slide 6 CHARGE ACCOUNTS Regular accounts Budget accounts Revolving accounts Credit limit Payments Finance charge

Introduction to Business © Thomson South-Western Chapter 18 Slide 7 CREDIT CARDS Bank cards Travel and entertainment cards Oil company cards Retail store cards

Introduction to Business © Thomson South-Western Chapter 18 Slide 8 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

Introduction to Business © Thomson South-Western Chapter 18 Slide 9 CONSUMER LOANS Installment loan Single payment loan Promissory note Collateral Secured loan Cosigner

Introduction to Business © Thomson South-Western Chapter 18 Slide 10 >> C H E C K P O I N T What are the major types of consumer credit?

Introduction to Business © Thomson South-Western Chapter 18 Slide 11 BENEFITS OF CREDIT Convenience Immediate possession Savings Credit rating Useful for emergencies

Introduction to Business © Thomson South-Western Chapter 18 Slide 12 >> C H E C K P O I N T What are the main advantages of consumer credit?

Introduction to Business © Thomson South-Western Chapter 18 Slide 13 CREDIT CONCERNS Overbuying Careless buying Higher prices Overuse of credit

Introduction to Business © Thomson South-Western Chapter 18 Slide 14 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?

Introduction to Business © Thomson South-Western Chapter 18 Slide 15 >> C H E C K P O I N T What are potential drawbacks of buying on credit?

Introduction to Business © Thomson South-Western Chapter 18 Slide 16 LESSON 18-2 Cost of Credit Goals Calculate interest in consumer credit situations. Explain finance charges when using credit.

Introduction to Business © Thomson South-Western Chapter 18 Slide 17 Key Terms interest annual percentage rate (APR)

Introduction to Business © Thomson South-Western Chapter 18 Slide 18 FINDING INTEREST Principal, PAmount of the loan Interest Rate, RPercent of interest charged or earned Time, TLength of time for which interest will be charged, usually expressed in years or parts of a year

Introduction to Business © Thomson South-Western Chapter 18 Slide 19 Interest  Principal  Rate  Time SIMPLE INTEREST I  P  R  T

Introduction to Business © Thomson South-Western Chapter 18 Slide 20 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

Introduction to Business © Thomson South-Western Chapter 18 Slide 21 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

Introduction to Business © Thomson South-Western Chapter 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

Introduction to Business © Thomson South-Western Chapter 18 Slide 23 INSTALLMENT INTEREST Decreasing loan payments Level loan payments

Introduction to Business © Thomson South-Western Chapter 18 Slide 24 DECREASING LOAN PAYMENTS

Introduction to Business © Thomson South-Western Chapter 18 Slide 25 LEVEL LOAN PAYMENTS

Introduction to Business © Thomson South-Western Chapter 18 Slide 26 >> C H E C K P O I N T What three things are necessary to calculate interest?

Introduction to Business © Thomson South-Western Chapter 18 Slide 27 FINANCE CHARGES Annual percentage rate (APR) Total dollar charges Compare credit costs

Introduction to Business © Thomson South-Western Chapter 18 Slide 28 >> C H E C K P O I N T What does APR represent?

Introduction to Business © Thomson South-Western Chapter 18 Slide 29 LESSON 18-3 Credit Application and Documents Goals Explain the credit application process. Describe the activities of a credit bureau. Discuss commonly used credit documents.

Introduction to Business © Thomson South-Western Chapter 18 Slide 30 Key Terms credit application credit bureau statement of account

Introduction to Business © Thomson South-Western Chapter 18 Slide 31 CREDIT APPLICATION PROCESS The three Cs of credit Character Capacity Capital Credit applications Documenting credit data Actions to establish credit

Introduction to Business © Thomson South-Western Chapter 18 Slide 32 >> C H E C K P O I N T What are the three Cs of credit?

Introduction to Business © Thomson South-Western Chapter 18 Slide 33 CREDIT BUREAU Gathers information on credit users 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

Introduction to Business © Thomson South-Western Chapter 18 Slide 34 >> C H E C K P O I N T What is the main purpose of a credit bureau?

Introduction to Business © Thomson South-Western Chapter 18 Slide 35 CREDIT DOCUMENTS Credit contracts Statement of account Accuracy of records Avoiding fraud

Introduction to Business © Thomson South-Western Chapter 18 Slide 36 >> C H E C K P O I N T What are the main items reported on a statement of account?

Introduction to Business © Thomson South-Western Chapter 18 Slide 37 LESSON 18-4 Protection of Credit Rights Goals Identify credit application regulations. Explain credit use regulations. Discuss credit problems and available assistance.

Introduction to Business © Thomson South-Western Chapter 18 Slide 38 Key Terms credit counselor bankruptcy

Introduction to Business © Thomson South-Western Chapter 18 Slide 39 CREDIT APPLICATION REGULATIONS Truth-in-Lending Law of 1968 Equal Credit Opportunity Act

Introduction to Business © Thomson South-Western Chapter 18 Slide 40 >> C H E C K P O I N T How does the Truth-in-Lending Law assist consumers?

Introduction to Business © Thomson South-Western Chapter 18 Slide 41 CREDIT USE REGULATIONS Fair Credit Billing Act Fair Credit Reporting Act Consumer Credit Reporting Reform Act Fair Debt Collections Act

Introduction to Business © Thomson South-Western Chapter 18 Slide 42 >> C H E C K P O I N T What is the purpose of the Fair Credit Reporting Act?

Introduction to Business © Thomson South-Western Chapter 18 Slide 43 CREDIT PROBLEMS AND ASSISTANCE Credit Counseling Bankruptcy

Introduction to Business © Thomson South-Western Chapter 18 Slide 44 >> C H E C K P O I N T What actions can a person take when facing credit problems?