1. Chapter 6: Consumer Credit
Personal Finance
Chapter 6: Consumer Credit

2. Objective
Analyze advantages/disadvantages of consumer credit

3. Basic Definitions
Credit: An arrangement to receive cash, goods, or services now and pay later
Creditor: An entity (bank, finance company, credit union, business, individual) to which the money is owed
Consumer Credit: The use of credit for personal needs

4. Questions How many of you have a credit card? What do you use it for?
Do you think high school students should be allowed to have credit cards?

5. Credit Fact
Using credit increases the amount of money you can spend now, but the cost of credit decreases the amount of money you will have in the future.

6. Agree or Disagree?
“It is okay to use credit for necessities. However, you should always pay cash for luxuries.”
Do you agree or disagree with that statement?
Why?

7. Credit Factors Do you have cash for a down payment?
Do you want to use your savings instead?
Can you afford the item?
Could you get a better deal?
Could you put off buying the item now?
What are the costs of credit?
Interest: Periodic charge in exchange for the use of credit

8. Credit Advantages Buy now and pay later: Instant satisfaction
You receive special discounts and deals
Shopping Convenience
Rent cars and hotels with credit cards
If you use it wisely:
Lenders will love you and give you better rates

9. Disadvantages of Credit
Temptation to overspend
If you fail to pay on time, your credit rating drops
You could lose income or property
Lower credit rating = Worse rates and be turned down for future loans

10. Closed-End Credit
A one-time loan that is paid back over a specified period of time & in payments of equal amounts

11. Open-Ended Credit
The ability to borrow money for a variety of goods & services up to a limit set by the company issuing the credit
Example: Credit Card Charge

12. Line of Credit
The maximum amount of money a creditor has made available to someone

13. Home Equity Loan
A loan based on your home equity (the difference between the current market value of your home & the amount you still owe on the mortgage)
Interest paid on home equity loans is tax deductible

14. Credit Cards Average person Has? 9
Convenience User: Pay off every month
Borrowers: Don’t pay off every month

15. More Cards
Debit: Electronically subtracts money from your savings or checking account
Smart Cards: Computer chip in a credit card. Contains personal information.
Travel and Entertainment Card (T&E):
Balance is due end of every month
Diner’s Club, American Express

16. Grace Period
A time period during which no finance charges will be added to a person’s credit card account

17. Finance Charge
The total dollar amount a person pays to use credit

18. Work Time Look up 5 credit cards Look for Interest Rates
Special offers and deals/incentives
Make a table
Then pick a card and explain why you chose it