1. Chapter 4: Going into Debt
Section 2: Sources of Loans and Credit

2. Two Credit Sources
Banking Institutions
Credit Card Companies

3. Types of Financial Institutions
Commercial Banks: checking/saving accts. - Loans to individuals
Control the most money; offer the most services
Savings and Loan (S&L) Associations:
- Savings Institutions primarily provide loans for homes.
Savings Banks: Originally served small businesses and homes
Originally did not provide Checking

4. Types of Financial Institutions (Cont’d)
Credit Unions: Owned and operated by its members
Provides low interest loans to members
Good consumer loans, but must join to use
Finance Companies:
Institution that takes over loans from retailers
Usually used with higher risk consumers
Consumer Finance Companies
Offer sub-prime (High interest) loans to higher risk companies
Offer High Rate Credit Cards
Use shady business practices

5. Crisis and Change: The 80’s
S&L Banks deregulated
Could offer checking accts as well as business loans
S&L’s make risky commercial investments
Cost tax-payers billions in bailout money

6. Charge Accounts Buy goods from a company and pay later
Regular Charge Account: $500-1,000 Credit limit in which a bill is sent monthly
No interest, but bill must be paid immediately
Revolving Charge Account: You don’t pay entire monthly bill, interest is added
Installment Charge Accounts:
Equal payments over a period of time
Interest is paid

7. Credit & Debit Credit Debit: Withdrawn from Checking account
Can be used at many different stores
Usually charge high interest
Debit: Withdrawn from Checking account

8. Finance Charges (The Cost of Credit)
Costs vary from company to company
APR: Cost expressed by a yearly percentage

9. Applying For Credit
Credit Bureau: Private Business hired by a lending agency
Run Credit Check:
Income
Current Debts
Personal life details
Ex. How you’ve repaid debts in the past

10. Credit Check Reveals “Credit Rating”
Higher the number, better chance of getting a loan
The 4 C’s of credit worthiness
1.Capacity to pay: Employment History
2.Character: Reputation
Ex. Trustworthy, criminal history
Collateral: What you are worth
Capital: Similar to Collateral, it is personal items of value. Example would be your investment accounts.
Shows your past ability to save and accumulate
Over 700 is Good, below 600 not so good

11. 2 types of loans Secured: Backed by collateral
Unsecured: Loan on reputation alone

12. Borrowing Responsibilities
Pay on time
If you don’t, fees will be incurred
Keep financial records

13. Government Regulation of Credit
Equal Credit Opportunity Act(1974):
Credit cannot be denied based on Race, religion, etc.
No discrimination bc. You receive govt. benefits
Women were the ones being discriminated

14. Usury Laws
Law restricting the amount of interest that can be charged for credit
Interest Ceilings limit the profit a bank can make
Early on, this had adverse effects on the economy

15. The B-Word Bankruptcy: Bankruptcy is not an easy way out
Cant pay debt.
Turn everything you own over to creditors
Bankruptcy is not an easy way out