1. Teens Money-Making Lesson 4: Credit Cards and Car Loans credit cards presentation slides 04/09

2. teens – lesson 9 - slide 9-A costs of owning and operating a motor vehicle ownership (fixed) costs: Depreciation (based on purchase price) Interest on loan (if buying on credit) Insurance Registration fee, license, taxes operating (variable) costs: Gasoline Oil and other fluids Tires Maintenance and repairs Parking and tolls

3. how much can you afford?(the 20-10 rule) never borrow more than 20% of your yearly net income If you earn $400 a month after taxes, then your net income in one year is: 12 x $400 = $4,800 Calculate 20% of your annual net income to find your safe debt load: $4,800 x 20% = $960 So, you should never have more than $960 of debt outstanding. Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 20%, but other debt should be included, such as car loans, student loans and credit cards. monthly payments shouldn’t exceed 10% of your monthly net income If your take-home pay is $400 a month $400 x 10% = $40 Your total monthly debt payments shouldn’t total more than $40 per month. Note: Housing payments (i.e., mortgage payments) should not be counted as part of the 10%, but other debt should be included, such as car loans, student loans and credit cards. teens – lesson 9 - slide 9-B

4. consumer decision making deciding to spend your money: Do I really need this item? Is it worth the time I spend making the money to buy it? Is there a better use for my money right now? deciding on the right purchase: What level of quality do I want (low, medium, or high)? What level of quality do I need? What types of services and repairs does the dealer offer? Should I wait until there is a sale on the type of car I want? Should I buy a new or a used car? If I buy a used car, should I buy it from a dealer or from a private party? Should I choose a car with a well-known name even if it costs more? Do I know anyone who owns the type of car I want? Are the warranty and the service contracts on the car comparable with warranties and service contracts on similar cars? What do consumer magazines say about the type of car I want? teens – lesson 9 - slide 9-C

5. shopping for a used car before you begin shopping: Decide how much you can afford to spend. Decide which car models and options interest you. Research the reliability of the model of car you want. Find out where the nearest repair facility is that works on the type of car you want. Find out whether parts are readily available for the type of car you want. Find recent prices in used-car “blue books” in the library, on the Internet, in newspaper ads, consumer magazines, etc. Shop for financing. Factor in the costs of the loan and the cost of maintenance. Know how to read a “Buyer’s Guide” sticker. as you shop: Find out the reputation of the dealer. Find out what type of warranty comes with the car. Find out what type of service contract comes with the car. teens – lesson 9 - slide 9-D

6. sources of used cars teens – lesson 9 - slide 9-E new-car dealers provide quality used vehicles; service department available; higher prices than other sources used-car dealers specialize in previously owned vehicles; limited warranty (if any); vehicles may be in poor condition private parties may be a good buy if vehicle was well maintained; few consumer protection regulations apply to private party sales other sources such as auctions or sales by government agencies, auto rental companies, and on the Internet; most of these vehicles have been driven many miles

7. shopping for a new car before you begin shopping: Decide which car model and specific options you want. Find out the invoice price and the true cost to the dealer of the model and options you want. Decide how much you are willing to pay the dealer above the invoice price. Make your offer to as many dealers as possible. Compare final sales prices with other dealers and buying services. Compare financing costs from various sources. If you already have a car, find out its value independent of the dealer’s trade-in offer. Try to sell your old car yourself (dealers usually give better deals without a trade-in). Decide whether you need an optional service contract or credit insurance. teens – lesson 9 - slide 9-F

8. warranties as-is (no warranty): No expressed or implied warranty. If you buy a car and have problems with it, you must pay for any repairs yourself. Some states do not permit “as-is” sales on used cars. implied warranties: Warranty of merchantability— a product will do what it is designed to do. Warranty of fitness for a particular purpose—a product will do what the seller promises it will do. Always in effect unless the product is sold as-is or the seller says in writing that there is no warranty. dealer warranties: Offered and specifically written by the dealer. Terms and conditions can vary greatly. Useful to compare warranty terms on similar cars or negotiate warranty coverage unexpired manufacturer’s warranties: Manufacturer’s warranty can sometimes be transferred to the new owner. There may be a fee for the transfer process. teens – lesson 9 - slide 9-G

9. service contracts (also called “extended warranties”) before deciding to buy a service contract, find out: The cost Which repairs the contract covers Whether the warranty already covers the same repairs Whether the vehicle is likely to need repairs and, if so, the potential cost of repairs Whether there is a deductible and, if so, what it is Whether repairs and service can be performed at locations other than at the dealership Whether the contract covers incidental expenses such as towing Whether there is a cancellation or refund policy and, if so, the cost Whether the dealer or company offering the service is reputable Whether you can purchase the service contract later teens – lesson 9 - slide 9-H

10. shopping for a car loan variables include: Annual Percentage Rate (APR) Length of the loan Monthly payments Total finance charge Total to be repaid teens – lesson 9 - slide 9-I APRLength Of loan Total monthly payment Total finance charge To be repaid 10.00%36 months 60 months $258.14 $169.98 $1,292.94 $2,198.52 $9,292.94 $10,198.52 12.25%36 months 60 months $266.67 $178.97 $1,600.15 $2,738.03 $9,600.15 $10,738.03 13.00%36 months 60 month $269.55 $182.02 $1,703.87 $2,921.58 $9,703.87 $10,921.58 example of how loans can vary:Borrowing $8,000 at different rates

11. how to calculate the total cost of a loan teens – lesson 9 - slide 9-J to estimate the total cost of a loan: Amount of the loan x APR x number of years* Example: $10,000 x 0.10 x 5 years = $5,000 $5,000 + $10,000 = $15,000 to estimate the amount of monthly payments: Total to be paid divided by number of months of the loan* Example: $15,000 / 60 = $250 per month * These formulas produce estimates that are slightly higher than your actual costs and payments, because they do not account for the reduction of interest payments as you repay the loan.

12. the truth-in-lending act the truth-in-lending act requires lender to inform borrower of: Amount financed What charges are included in amount financed Total finance charge, in dollars Annual Percentage Rate (APR) Payment schedule Total amount of payments Total sales price Prepayment penalty, if any Late payment penalty, if any Security interest Insurance charges teens – lesson 9 - slide 9-K

13. types of auto insurance coverage liability (40–50% of premium) Bodily injury coverage Property-damage coverage (e.g., to another person’s car) collision (up to 30% of premium) Pays for the physical damage to your car as a result of an accident Limited by deductible comprehensive (about 12% of premium) Pays for damage caused by vandalism, hailstorms, floods, theft, etc. medical Covers medical payments for driver and passengers injured in accident uninsured motorist Reimburses you for bodily injury in accidents caused by uninsured drivers towing and labor rental reimbursement Pays a specific amount per day to rent a car while yours is being fixed teens – lesson 9 - slide 9-L

14. how insurance rates are set personal characteristics Age Sex Marital status Personal habits (e.g., smoking) Type and frequency of vehicle use (e.g., commuting) geographic location (often classified by zip code) “Rural” usually lowers rates, “urban” usually raises rates driving record Accident with death, bodily injury, or property damage in excess of $400 may trigger surcharge on premium for 3 years Number and kind of moving violations (and total of associated points) Number of years insured with the company vehicle characteristics Damage, repair, and theft record of type and model of car Age of car teens – lesson 9 - slide 9-M

15. repossession rights of creditor Can seize car as soon as you default Can’t commit a breach of the peace, e.g., use physical force or threats of force Can keep car or resell it May not keep or sell any personal property in car (not including improvements such as a stereo or luggage rack) your rights May buy back car by paying the full amount owed on it plus repossession expenses your legal responsibilities Must pay the “deficiency balance”—the amount of debt remaining even after your creditor has sold your car teens – lesson 9 - slide 9-N

16. leasing a motor vehicle advantages Smaller initial outlay than down payment when buying on credit Monthly lease payments may be less than monthly finance payments Lease agreement provides detailed records for business purposes Oftentimes, all service charges related to maintenance are included in lease, so there is no additional outlay of money for regular maintenance disadvantages No ownership interest in the vehicle Must meet requirements similar to applying for credit Additional costs occur (such as for extra mileage, certain repairs, ending lease early) discussion of leasing vs. buying You must decide which option makes the most sense for your situation. Do you have cash available for a down payment? How much of a monthly payment can you afford? How long do you plan to keep the car? teens – lesson 9 - slide 9-O

17. Teens lesson nine Credit cards presentation slides 04/09

18. applying for a credit card costs: Annual Percentage Rate (APR) Grace period Annual fees Transaction fees Balancing computation method for the finance charge features: Credit limit How widely the card is accepted What services and features are available teens – lesson 8 - slide 8-A

19. calculating finance charges average daily balance: You pay interest on the average balance owed during the billing cycle. The creditor figures the balance in your account on each day of the billing cycle, then adds together these amounts and divides by the number of days in the billing cycle. adjusted balance: You pay interest on the opening balance after subtracting the payment or returns made during the month. previous balance: You pay interest on the opening balance, regardless of payments made during the month. past-due balance: No finance charge is added if the full payment is received within the grace period. If it is not received, a finance charge for the unpaid amount is added on to your next bill. teens – lesson 8 - slide 8-B

20. examples of finance charges teens – lesson 8 - slide 8-C average daily balance adjusted balance previous balance monthly1.5% rates18% previous balance$400 payments$300 On 15th day (new balance =$100) average daily balance $250*N/A finance charge $3.75 (1.5% x $250) $1.50 (1.5% x $100) $6.00 (1.5% x $400) * To figure average daily balance: ($400 x 15 days) + ($100 x 15 days) = $250 x 30 days

21. comparing credit cards Type of account Annual fee Grace period Annual Percentage Rate (APR) Credit limit Minimum monthly payment Finance charge calculation method Late payment fee, other fees Other features teens – lesson 8 - slide 8-D

22. what to do if you’re denied credit if you think the reasons for the denial are valid: Ask the creditor if you can provide additional information or arrange alternate credit terms. Apply to another creditor whose standards may be different. Do the things you need to do to improve your creditworthiness (pay bills on time, increase income, reduce spending, obtain a secured card, etc.) and then reapply. if you are not sure whether the reason for the denial is valid: Ask the creditor to explain why you were denied. Review your credit history. If you find your credit history contains errors, take steps to correct the errors. if you believe the reason for the denial is invalid and that the creditor has discriminated against you: Notify the federal enforcement agency whose name you were given by the creditor. The federal enforcement agency will investigate and report back to you. If you can afford it, hire an attorney to file suit against the creditor. If the court determines the creditor did discriminate, the creditor will be required to pay you actual damages plus punitive damages. teens – lesson 8 - slide 8-E

23. reading a credit card statement teens – lesson 8 - slide 8-F

24. dealing with billing errors fair credit billing act (1974) Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts. You can challenge a billing statement for errors such as charges for unauthorized purchases, charges for items that were never delivered, failure to credit a payment, etc. You must notify the creditor of a disputed item within 60 days. Creditor must investigate and, within two billing periods, either correct the mistake or explain why the charge is not in error. You cannot be billed for or forced to pay the disputed amount until the creditor has finished the investigation. If it is determined that you are responsible for the bill, you must be given the usual amount of time to pay it. Your credit history is protected during the dispute process. Creditor must supply customers with a statement of their rights at the time the account is opened and at least twice a year thereafter. teens – lesson 8 - slide 8-G

25. other credit card protections prompt credit for payment A card issuer must credit your account on the day the issuer receives your payment, unless the payment is not made according to the creditor’s requirements. refunds of credit balances When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or receiving a refund. unauthorized charges If you report your card lost before it is used, you cannot be held responsible for any unauthorized charges. If your card is used before you report it lost, you are liable for $0 if reported within two business days. After that, you’re liable for no more than $50.00. disputes about merchandise or services In some circumstances, you have the right to withhold payment for unsatisfactory merchandise or services. teens – lesson 8 - slide 8-H

26. credit card do’s and don’ts shop around Look at various sources. read and understand the contract Read the contract carefully. Don’t rush into signing anything. Once a contract is signed, get a copy of it. Know the penalties for missed payments. know your cost Figure out total price when paying with credit. Make the largest payments possible. Know the penalties for missed payments. Buy on installment credit only after you have evaluated all other possibilities. Don’t be misled into thinking small payments will be easy. teens – lesson 8 - slide 8-I

27. how much can you afford? (the 20-10 rule) never borrow more than 20% of your yearly net income If your net income (money after taxes) is $400 a month, then your net income in one year is: 12 x $400 = $4,800 Calculate 20% of your annual net income to find your safe debt load. $4,800 x 20% = $960 So, you should never have more than $960 of debt outstanding. Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 20%, but other debt should. monthly payments shouldn’t exceed 10% of your monthly net income If your take-home pay is $400 a month: $400 x 10% = $40 Your total monthly debt payments shouldn’t total more than $40 per month. Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 10%, but other debt should be included, such as car loans, student loans, and credit cards. teens – lesson 8 - slide 8-J

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