1. May 10 & 11 Objectives Homework Today’s Agenda
(82) Compare the types of consumer credit.
(83) Describe the advantages and disadvantages of consumer credit.
Homework
Today’s Agenda
Daily Quiz Banking Services
Checking Account Project due today
Understanding Credit PowerPoint + Notes. Calculating Credit Worksheet.
Closure
What are the pros and cons of using credit instead of paying in cash?
BRO: How does the use of credit differ from checking account maintenance?

2. Describe the advantages and disadvantages of consumer credit.
Task 83

3. Consumer Credit Advantages Disadvantages Convenience
Immediate Possession of Purchase
Avenue for Savings
Establish & maintain good credit rating
Usefulness in emergencies
Danger of Overbuying
Temptation for Impulse Purchases
Assessment of Fees interest, late payment, over credit limit, service charges, finance charges
Paying Higher Prices for Purchases
Bad Credit Rating Poor Credit Management

4. Answer the three questions in your notes.
Why protect your credit rating? It will help you qualify for low interest rates and get the best loans. Good for your overall financial health.
Credit debt & salary: debt-to-income ratio. <15% good, 15%-20% Caution, >20% Danger
Why a credit card?: More convenient for hotel or car to be put on hold, without tying up your funds, especially if you have to cancel.
Think About It!

5. Compare the types of consumer credit.
Task 82

6. Types of Credit (1) Installment Loans (2) Revolving Credit
An installment loan is also known as “closed end” credit.
Equal Monthly Payments
Specified Period of Time
Examples
15 – 30 Year Mortgage
48 – 60 Month Car Loan
10 Year Student Loan
Revolving credit is also referred to as “open end.”
Available Line of Credit
Credit Limit
Examples
Credit Card
Home Equity Line

7. Types of Credit (3) Secured Loans (4) Unsecured Loans
A secured loan requires the borrower to pledge some asset as collateral.
Advantages include:
lower interest rates
larger loan amounts
better terms
Examples
Mortgage
Auto Loan (New and Used)
An unsecured loan is issued solely based upon a borrower’s creditworthiness.
No collateral required
Need a high credit rating
Examples
Credit Cards
Student Loans

8. Types of Credit (5) Title Loan (6) Payday Loan
A title loan is a short-term loan based on collateral assets, such as a car title.
Advantages
Quick Access
Does not consider credit rating
Disadvantages
High interest rate
A payday loan, or cash advance, is a short-term loan for a small amount of money that requires a post-dated check.
Advantages
Quick Access to $100 - $1500
Does not consider credit rating
Disadvantages
Must repay within 30 days or less
High interest rate / fees

9. Terms for Credit
When comparison shopping for credit terms, you should consider:
Interest Rate Choose the lowest APR possible & avoid extra fees.
Cosigner Is a cosigner (someone who agrees to repay the debt if you can’t) required?
Grace period How much time is allowed to repay the debt without interest charges?

10. Calculating the Cost of Credit
Worksheet