10-3 (pages 332 – 339) Sources of Consumer Credit. 2 Basic forms of borrowing: . Types of Credit. Secured loan -- The property pledged is called You agree to give up this property if you fail to make your payments. Installment loan —
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2 Basic forms of borrowing:
The property pledged is called
You agree to give up this property if you fail to make your payments.
(Example—a monthly payment for a car loan)
Called closed-end credit—money borrowed for a particular amount and
Are hard to obtain.
for the lender.
Shop around for a loan—interest rates differ from one institution to another.
Look for “special deals” offered periodically
Finance Companies—lend to people with
Charge high interest rates
Life Insurance Companies—may be able to use your life insurance policy as
But, if you don’t pay back the loan by the time you die, your policy benefits are
Credit Card Cash Advances—You can borrow against your
High interest rate (often up to 24%) and a fee of 3% of the cash advance.
Pawnbrokers—You turn over personal property (TV, jewelry, antiques, etc.) to get a loan. If you pay back the loan, you get your property back. If not,
Rent-to-own companies—You make payments for an item usually on a weekly basis. Once all the payment are made, you own the product.
Interest rates can be as high as
1.Regular charge accounts—you must pay your each month in full within a specified amount of time.
You only must pay a
each month, and can let the rest “revolve” into the next month.
Can take months or even years to pay off.
Or, pay the entire balance each month by the due date and pay
Some charge ($15 – 100) DON’T GET THIS TYPE—LOOK FOR FREE CARDS
Interest—to be paid on unpaid balances. Most interest rates are
Penalties—charged if you go over your
Is the time between the billing date and the payment due date when
(usually 15 – 25 days)
Chose a loan instead of a credit card for
Don’t pay —a large part of this is interest, so you don’t reduce your debt much
BESMART WITH YOUR MONEY--
DON’T FORGET THE