1. Ch. 11 Credit & Debt

2. What is a possible solution if you really need to buy something and you don’t have the $$$$?

3. CREDIT….
An arrangement in which you receive $, goods, or services now and pay in the future.
Creditor = sells the goods on credit or lends the $
Debtor = buys the goods on credit or borrow the $
Interest = fee creditors charge for lending money or extending credit.

4. Open-end Credit…
Credit can increased by the debtor by continuing to purchase goods or services on credit up to a certain amount of $.
Examples = MasterCard, VIA, or stores such as Macy’s

5. Closed-End Credit…
Given for a specific amount of money, which cannot be increased by additional purchases.
Examples: Purchase of a house, car, couch
Debtor makes monthly installments payments

6. Security…
A way for creditors to get money back in case borrower (debtor) does not pay Security interest: creditor’s right to use collateral to ensure payment of a debt Examples of Collateral: consumer goods, fixtures, equipment, inventory, farm equipment/products.

7. Security agreements can allow for Future advances of credit…
Allow the debtor to get additional credit in the future that is secured by the same collateral such as a house.

8. Default… Failure to make timely payments on a loan.
What happens?????? Secured loans means that if the loan is not repaid, the lender can take the collateral to recover or offset the debt.

9. Security Interest…
Said to attach when it is legally enforceable by the secured party. It is a creditor’s right to use collateral to recover a debt.
Attachment occurs when the debtors owns the collateral
The second party transfers something of value
The secured party either takes possession of the collateral or signs a security agreement.

10. When security interest attaches…
It is effective only between the debtor and creditor
In order to be effective against claims of any other creditors, a creditor must perfect the interest.
A security interest can be perfected by attachment alone for consumer goods bought in a store, filing a financial statement in a public office for most other items, or possession of the collateral (such as with a pawn shop).

11. Guarantors and Sureties…two types of parties who guarantee a loan.
Guarantor = secondary party, agrees to pay if debtor defaults.
Surety = primary party agrees to pay off a debt outright just as the debtor would have.
A loan can be protected by having another party stand behind the loan to guarantee it will be repaid.

12. Your credit is important…
Start planning your financial goals
Manage your money wisely
Stay within your means--Don’t overspend
Your credit score is reflected in your spending habits and debt.
Start out with small purchases
Pay bills on time
Protect your credit rating and financial identity

13. Buying a vehicle…
Paying with Cash (allows for negotiation on a better price)
Shop around for the best deals and interest
Federal law requires that they disclose finance charge and APR to borrows
Finance charge=the cost of the loan in dollars and cents. Annual Interest Rate (APR) = the true interest rate of the loan.

14. Defective cars…
Some cars are have continuous mechanical problems. In some cases the seller may be liable.

15. Using Credit Cards.
One advantage = if there is a dispute on a purchase and you notify your issuer, you don’t have to pay.
In most cases, it provides some protection--you only have to pay $50 in unauthorized fees if your card is stolen and you have notified the issuer.
Disadvantage=You can be tempted to overspend and go deep into debt. Interest and late fees can make it very difficult to catch up.

16. Sequence of Events for a Loan
Person fills out application for loan or credit.
Lender checks into the person’s credit history.
Lender obtains security interest to back the loan.
The security interest is attached.
The creditor gives $ or goods to the debtor.
Debtor pays off the credit or loan.
Debtor defaults on loan and creditor takes possession of collateral, or a guarantor or surety pays off debt.

17. Student Loans
A common way to pay for a college education when you cannot afford it otherwise.
Government – one of the biggest student loan lenders.
Student fills out FAFSA to determine eligibility and details.

18. All warning signs of DEBT
Making only the minimum monthly payment on a credit card.
Missing loan payments or often paying late.
Receiving second and third notices of overdue payments.
Borrowing to pay off old debts
Exceeding the credit limits on your credit cards.
Being denied credit because of a bad credit rating
All warning signs of DEBT

19. Start thinking ahead… Future goals – long-time and short-term goals
Furthering your academic education-College, Technical School, etc.
Career goals-how do you reach your career goals?
Future purchases-Home, Car, etc.