1. © SOUTH-WESTERN EDUCATIONAL PUBLISHING LESSON 16.1 UNIT 6 WHAT IS CREDIT? DESCRIBE HOW CREDIT DEVELOPED IN AMERICA. DEFINE BASIC CREDIT VOCABULARY. DISCUSS THE ADVANTAGES AND DISADVANTAGES OF USING CREDIT.

2. GA -STANDARDS Students will analyze factors that affect the choices of credit, the cost of credit, and the legal aspects of using credit!

3. © South-Western Educational Publishing CHAPTER 16 UNIT-6 CREDIT IN AMERICA What Is Credit?  Money borrowed to buy something now, with the agreement to pay for it later.

4. © South-Western Educational Publishing DEVELOPMENT OF CREDIT Read the information in page 387-388. In the past Credit today Lets discuss!

5. © South-Western Educational Publishing THE VOCABULARY OF CREDIT Borrower or debtor Creditor Capital Collateral Principal Finance charge

6. ADVANTAGES OF CONSUMER CREDIT  Purchasing power  Emergency funds  Convenience  Deferred billing  Able to buy needed items now  Don’t have to carry cash.  Proof of purchase  Purchase Protection

7. DISADVANTAGES OF CONSUMER CREDIT  Higher costs  Finance charges  Tie up income  Overspending  Impulse buying is easier in our immediate gratification culture.  Mistakes with credit tend to have long term consequences.

8. © SOUTH-WESTERN EDUCATIONAL PUBLISHING LESSON 16.2 TYPES AND SOURCES OF CREDIT LIST AND DESCRIBE THE KINDS OF CREDIT AVAILABLE. DESCRIBE AND COMPARE SOURCES OF CREDIT.

9. KINDS OF CREDIT Open-ended credit- Is an agreement to lend the borrower an amount up to stated limit and to allow borrowing up to that limit again. Closed-end credit Is a loan for a specific amount that must be repaid, in full, including finance charges by a stated due date. Ex. Car loan. Service credit An agreement to have a service performed now and pay later. Ex. Telephone bill, utility bills.

10. 2 TYPES OF OPEN ENDED CREDIT  Open 30-day accounts  Has to pay the full balance owed each month.  Ex. Amex (black), Diners club.  Revolving credit accounts  Has the option to pay in full or making payments (min) each month.  Ex Visa, Amex

11. © South-Western Educational Publishing CREDIT CARD TERMS Define- page 394 Annual percentage rate (APR) Free period (grace period) Annual fees Transaction fees late fees Method of calculating the finance charge

12. © South-Western Educational Publishing SOURCES OF CREDIT Retail stores Credit card companies Banks and credit unions Finance companies Pawnbrokers Private lenders Other sources of consumer credit

13. ACTIVITY Use internet and MS word. You are to buy a car ( from my life project) Calculate your monthly payment and total cost of the loan for a 5 year loan (60 months) If you have good credit and if you have bad credit. Type in MS word. Include your source Ex. Nissan Maxima 2013. Total cost of car= MSRP $ 31 0000 Good credit = 5.25% Total monthly payment=?? Total cost of car=?? Paid amount of interest= 31 000-the cost of the car

14. CREDIT IS THE ABILITY TO BUY NOW AND PAY MORE LATER! TRUE?FALSE? PAYMENT OF INTEREST IS USUALLY A PART OF USING CREDIT, SO YES, IF YOU PAY INTEREST, YOU PAY MORE! IF YOU PAY YOUR BILL BEFORE INTEREST IS CHARGED, YOU DO NOT PAY MORE! ONLY ABOUT 30% OF AMERCANS PAYOFF CREDIT BALANCES EVERY MONTH, SO 70% OF THE TIME, THE STATEMENT IS TRUE!!

15. OKAY, IT COSTS MORE. WHY? You must pay companies to loan you money. This payment is INTEREST. Two Types of Interest: o Simple Formula-the simple formula  I = P x R x T  Interest= Principle X Rate X Time

16. OKAY, IT COSTS MORE. WHY? o Compound Interest-- The not-so-simple formula I = P X 1 + (r/n) nt  I = final amount  P = principal amount (initial investment)  r = annual nominal interest rate (as a decimal, not in percentage)  n = number of times the interest is compounded per year  t = number of years

17. OKAY, IT COSTS MORE. WHY? Let’s look at an online credit card payment calculator that is based on the compound interest calculation formula: http://www.federalreserve.gov/creditcardcalcula tor/Default.aspx

18. OKAY, IT COSTS MORE. WHY? Assume that you owe $5000 on your credit card and are paying 12% interest. You are making only the minimum monthly payment. How long will it take to payoff your balance?

19. OKAY, IT COSTS MORE. WHY? What if you decide to pay $400 every month and have a 12% interest rate?  NOTICE THE DIFFERENCE IN THE TOTAL INTEREST PAID!

20. WHEN YOU USE CREDIT, YOU ALMOST CERTAINLY: BUY NOW! PAY MORE, LATER! Sometimes MUCH, MUCH MORE!!