1. Carl Johnson Financial Literacy Jenks High School

2. A loan is money that you borrow and must repay Before you take out a loan, make sure that you can repay The best way is to use the debt payment to income ratio The percentage of debt you have in relation to your net income Net income is the income you receive You should spend no more than 20% of your income on debt payments Lower than 20% is even better! Calculate this by dividing your total monthly debt payments by your monthly net income (Not including housing…)

3. How much will loan cost you? The finance charge is the total dollar amount you pay to use credit You will pay a finance charge to a creditor on any unpaid balance It is calculated using the annual percentage rate (APR) APR is the cost of credit on a yearly basis that is expressed as a percentage Ex. An APR of 18% means that you would pay $18 per year for each $100 you owe See the APR table on page 165 for examples in calculating APR

4. You will be able to choose among various features when applying for financing Length of loan Amount of monthly payments Interest rates Some people might want longer term financing in order to have smaller monthly payments Some might want a smaller down payment or low fixed payments with a large final payment

5. Some options for lower interest rates might be: Variable interest rates Secured loans Collateral is a form of security to help guarantee that the creditor will be repaid Up front cash Shorter terms

6. Most common method is by using simple interest Three factors are involved Principal Interest Rate Amount of time Other methods may include: Simple interest on a declining balance Most credit unions use this Add on interest The Truth In Lending Act requires that creditors inform consumers as how the finance charge and APR will affect their costs

7. Minimum monthly payments are the smallest amount that you can pay and remain a borrower in good standing The negative is that will take you a lot longer to pay off your loan and the more interest you will pay

8. Factors that will determine whether a lender will extend credit to you Character – Will You Repay The Loan? Capacity – Can You Repay The Loan? Capital – What Are Your Assets/Net Worth? Collateral – What If You Do Not Repay The Loan? Credit History – What Is Your Credit History?

9. Your credit rating is a measure of a persons ability and willingness to make credit payments on time Factors that determine your credit rating Income Current Debt Character Information The Equal Credit Opportunity Act (ECOA) gives all credit applicants the same basic rights. They may not use race, nationality, age, sex, marital status and certain other factors against you

10. The ECOA gives you the right to know the reasons for the denial If information is from a credit report, you are entitled to know what specific information in the report led to the denial You can contact the credit bureau and ask for a copy of your report It is free within 60 days within the denial of your application, or one free report each year You may ask the bureau to investigate and correct any inaccuracy that is contain in your record

11. Your credit report is your complete credit history that is collected and maintained by a credit bureau There are three major credit bureaus Experian Trans Union Equifax Your credit file contains: Employer/Position/Income Birth Date Addresses Previous Employers Spouse Social Security Number Homeowner/Rental Status Detailed Credit Info – Applications/Payments/Debt

12. Congress passed the Fair Credit Reporting Act in 1971 which regulates the use of credit reports Requires deletion of out-of-date info, as well as gave consumers access to their credit files Information on your report will stay with you for seven years, unless it is bankruptcy – which is ten years You have the right to act legally if a creditor or credit bureau has caused you harm by not following the rules as established by the Fair Credit Reporting Act