1. USING CREDIT
SSEPF4: The student will evaluate the costs and benefits of using credit

2. Becoming Creditworthy: The Three C's
Character /Credit History (Are you likely to pay the money back?)
Capacity (Can you afford the loan/credit limit?)
Collateral (Do you have anything the bank can seize if you don’t repay?)

3. Interest Rates: The Cost of Borrowing Money
Simple Interest Rates
Compound Interest Rates
Interest charged ONLY on the ORIGINAL amount borrowed
Bank loans
Interest charged on the original amount borrowed PLUS the EXISTING amount owed

4. Credit Cards Benefits Disadvantages
Proper use can build positive credit history
Emergency use
Annual Fees
Finance charges compounded monthly
Variable interest rates

5. Practice
Richard’s family wants to buy a new entertainment system that costs $2,000. They could get a 3-year personal loan from the bank at a fixed annual rate of 9.5%. They could also get a 3-year loan from a finance company that charges 8%, compounded annually. Calculate the total cost of each loan after 3 years, and then decide which credit offer the family should accept.

6. Making Wise Credit Choices
Can I really afford this debt?
MONTHLY INCOME – Taxes – Health Insurance – fixed expenses – variable expenses = Money Available

7. Jonathan’s Financial Information for July
Practice
Jonathan’s Financial Information for July
Expenses
Income
Fixed
$1,250
Gross Wages (November)
$4,000
Variable
$1,350
Mandatory deductions from Jonathan’s wages (November)
Income Tax
$600
FICA
$325
Health Insurance
$35
Other
$20
If Jonathan’s income and expenses remain the same, can he afford a car payment of $600 per month?