1. Chapter 6 Consumer Credit
Section 6.1
What is consumer credit?

2. Using Consumer Credit Wisely
Credit – an arrangement to receive cash, goods, or services now and pay for them in the future.
Consumer credit – the use of credit for personal needs
Creditor – person that lends money. (Merchant, financial institution, or individual)

3. Credit Uses and Misuses
Using credit may increase the amount of money you spend now, but the cost of credit decreases the amount of money you will have in the future.
Cost of credit – the extra money that you pay over the actual price of what you are charging (interest and fees)

4. Factors to think of before using credit
Do you have the cash you need for a down payment
Do you want to use your savings instead of credit
Can you afford the item
Could you use credit in some better way
Could you put off buying the item for a while
What are the costs of using credit
***Make sure the benefits of making the purchase outweigh the costs of credit*****

5. Advantages of Credit Let’s you enjoy goods and services now
Allows you to make several purchases with one monthly payment
Gives you a record of your expenses
If you use credit wisely, lenders view you as a responsible person

6. Disadvantages of Credit
Credit costs money
The temptation to buy more than you can afford
You can lose your credit reputation
You can lose your income and property

7. Closed-End Credit
Closed – end credit is a one time loan that you will pay back over a specified period of time
Examples: Mortgage, vehicle loans, installment loans
These types of loans usually carry lower interest rates than open ended credit

8. Open- Ended Credit
Open-Ended Credit is a loan with a certain limit on the amount of money you can borrow for a variety of goods and services
Examples: department store credit cards and bank credit cards
Line of Credit – the maximum amount of money that the creditor allows you to spend
With open ended credit you can use your card for an unlimited amount of purchases as long as you don’t exceed your line of credit.

9. Loans
Borrowed money with an agreement to repay it with interest within a certain amount of time
Inexpensive Loans – parents or other family members
Medium Priced loans – commercial banks, savings and loans
Expensive loans – finance companies and retail stores
Home equity loans (HELOC) – based on your home equity, interest is tax deductible

10. Credit Cards
Grace Period – a time period during which no finance charges will be added to your account
Finance Charge – the total dollar amount you pay to use credit
Most card companies have eliminated annual fees, some still charge fees, but typically $20 or less.

11. Types of Cards
Debit Cards – money comes directly out of your checking account. Can also be used at ATM machines. Sometimes carry a fee for each purchase
Smart Card – equipped with a computer chip that stores 500 times the amount of data of a normal card, keeps track of information such as frequent flyer miles
Travel and Entertainment cards – the balance is due in full at the end of each month

12. Choosing a Credit Card Page 160 Figure 6.3
Before you enter the credit world you need to know what is best for you
What factors should you be thinking about when choosing a credit card?