Chapter 7: Planned Borrowing. Discuss the elements of the planned use of credit. Establish your own debt limit. Understand the language of consumer loans. Describe the sources of consumer loans. Objectives. Calculate the APR and finance charges on both single-payment and installment loans.
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Discuss the elements of the planned use of credit.
Establish your own debt limit.
Understand the language of consumer loans.
Describe the sources of consumer loans.
Calculate the APR and finance charges on both single-payment and installment loans.
Recognize signs of over-indebtedness, know what to do when it occurs, and explain your rights regarding credit collection and bankruptcy.
Most people use installment credit 12+ times during their life.
Yet, only 1:3 shop for credit terms!
DID YOU KNOW!
A knowing decision to borrow to finance a purchase or simply to borrow cash.
THE TASK OF DETERMINING:
The debt limit most people establish for themselves is lower than what lenders would be willing to lend.
Debt Payments-to-Income Ratio
monthly after tax income
*Not including housing
Debt To Equity Ratio
Should be < 1
*Excluding home value
* Excluding home mortgage loans and convenience credit to be repaid in full when the bill arrives.
Monthly Installment Payment (Principal and Interest) Required to Repay $1,000*
*To illustrate, assume you want to know how much the monthly payment would be to finance a $9,000 loan at 10% for 3 years. To repay $1,000, the figure is $32.27, multiply by 9 (for $9,000) to determine that $290.43 is required for 36 months of payments. When using amounts greater or less than $1,000, convert using decimals. For example, a loan of $950 at 10 percent for 3 years would be calculated as follows: $32.27 x 0.95 = $30.66.
Parents and family members
Life insurance company
Savings and loan association
The Truth In Lending Act requires creditors to provide you with accurate and complete credit costs and terms. APR
APR CALCULATIONS FOR SINGLE-PAYMENT LOANS:
Calculating Finance Charges and APR
APR CALCULATIONS FOR INSTALLMENT LOANS:
TEN SIGNS OF OVER-INDEBTNESS:
Federal law regulates debt collection
Bankruptcy as last resort
Chapter 13 (reorganization)
Chapter 7 (liquidation)
Pay attention to accounts held jointly
Ask creditors to close joint accounts
Remember, creditors can legally collect from either party
Get updated copy of credit report
1. Determine what is owed.
2. Focus budget on debt reduction.
3. Contact creditors.
4. Take on no new credit.
6. Find good help.
7. Avoid bad help.
1. Choose most advantageous repayment pattern allowed.
2. Consolidate student loans.
3. Pay electronically.
4. Be punctual with repayments.
5. Refinance with second mortgage loan.