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Credit. Learning Goals. Students will analyze the role and importance of credit in personal and business finance. Key Terms. Credit A privilege of using someone else’s money for a period of time Credit Worthiness Borrower’s ability to assume and pay back credit (debt) Collateral

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Credit

Credit


Learning goals

Learning Goals

  • Students will analyze the role and importance of credit in personal and business finance.


Key terms

Key Terms

  • Credit

    • A privilege of using someone else’s money for a period of time

  • Credit Worthiness

    • Borrower’s ability to assume and pay back credit (debt)

  • Collateral

    • Offers your house, car etc. to reduce risk of loan

    • Can usually get you a lower rate on a loan

  • Creditor

    • Any person that grants a loan or sells on credit

  • Debtor

    • Any person/business that buys on a credit or receives a loan


Key ideas

Key Ideas

  • Credit Rating

    • Indication of the level of risk that consumers business or government will pose if credit is granted to them

    • Measure of worthiness

    • Shared by businesses

  • Credit Crisis

    • Being consistently unable to pay off credit cards

    • Using cash advances on everyday expenses

    • Not knowing how much debt you have

    • Seeming to always be in debt


Advantages of credit

Advantages of Credit

  • Can make major purchases

  • Overcome cash-flow shortages

  • Company cards

  • Widely accepted as substitute for cash

    Can you think of any other advantages?


Disadvantages of credit

Disadvantages of Credit

  • Increased costs

  • Defaulting on a loan

  • Overbuy

  • Financial difficulties

    Can you think of any other disadvantages?


Credit cards

Credit Cards


Installment sales credit

Installment Sales Credit

  • Is a credit plan that requires a purchaser to make a down payment and fixed regular payments with finance charges added to the purchase price

    • When buying expensive purchases such as a car

    • Bigger down payment is better

  • Term loan – a form of installment credit in which the borrower agrees to make fixed monthly payments over a set period of time (term)

  • Lease – similar but the borrower doesn’t actually own the asset it’s just a long-term rental

  • Demand loan – lender can require full payment at any point after the loan has been given


3cs of credit

3Cs of Credit

  • Character

    • Borrower’s willingness to repay a loan, trustworthiness and reliability

    • “Will they repay their debt?”

    • Have you used credit before?

    • Do you pay your bills on time?

    • Do you have a good credit report?

    • Can you provide character references?

    • How long have you lived at your present address?

    • How long have you been at your present job?


3cs of credit1

3Cs of Credit

  • Capacity

    • Ability to make payments on time and pay a debt when it’s due

    • “Can they repay their debt?”

    • Do you have a steady job? If so, what is your salary?

    • How many other loan payments do you have?

    • What are your current living expenses?

    • What are your current debts?

    • How many dependents do you have?


3cs of credit2

3Cs of Credit

  • Capital

    • Value of borrower’s assets

    • “What do they own that could be given up if they cannot repay their debt?”

    • What property do you own that can secure the loan?

    • Do you have a savings account?

    • Do you have investments to use as collateral?


To do

To Do:

  • Complete the Credit – lesson 6 worksheet in the student common drive


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