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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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Presentation Transcript
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?

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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