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Ch. 20

Ch. 20. Credit/Consumer Rights. Credit. Receiving something with the promise of payment at a later time. Principle: Actual cost of the good or service. Interest: Amount paid for the use of money. Charge Accounts. Buy goods and services at individual stores and pay for them later.

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Ch. 20

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  1. Ch. 20 Credit/Consumer Rights

  2. Credit • Receiving something with the promise of payment at a later time. • Principle: Actual cost of the good or service. • Interest: Amount paid for the use of money.

  3. Charge Accounts • Buy goods and services at individual stores and pay for them later. • Credit limit: Maximum amount a person can buy with the promise of payment at a later time. • Three types of accounts are installment, regular, and revolving.

  4. Types of Charge Accounts • Installment Account • Repaid with equal payments over a certain period of time • Part of the payment goes towards interest & part towards the principle • Car loan or mortgage • Regular Account • Billing cycles where a bill is sent at the end • No interest is charged if entire bill is paid • Account can’t be used again until the balance is paid • Interest is charged on the balance not paid • Furniture Stores usually do this. Pay by 2010, certain amount each month, but with no interest. • Revolving Account • Billing cycles where a bill is sent at the end • Interest charged on portion not paid • Account can still be used until credit limit is reached • Example: Credit Cards

  5. Credit and Debit cards • Credit cards: Make purchases without cash. • Used to purchase items and receive loans. • Charge high interest rates (Avg. 18%) in the 1990’s. • Lower interest rates if the customer is “reliable”. • Debit Cards: Transfer funds electronically. • Popular use in Automated Teller Machines (ATM’s) • Now can be tied directly to checking accounts (check cards)

  6. Credit Cards • Make purchases without having the money • Charge high interest rates – usually @ 18% • Lower interest rates if the customer is reliable • Finance Charges – Cost of credit (interest) expressed in dollars • APR – Cost of credit (interest) expressed as a percentage

  7. Applying for Credit • Fill out application • Credit Bureau does a credit check • Creditor may ask for references • Credit checks show your income, debt and ability to pay debts in the past

  8. Credit Rating • Rating of risk: Excellent, Good, Average or Poor • Ratings have a number associated with them • 3 Credit Bureaus: Experian, Transunion & Equifax • Gives lenders an idea of reliability when issuing loans • Higher Credit Score = less interest you are charged on a loan = saving money • Unsecured loans – loan based on reputation • Secured loans – have collateral to back up the loan

  9. Credit Bureaus

  10. Government Regulations • Equal Credit Opportunity Act: a person can’t be denied credit because of race, religion, national origin, gender, marital status or age • Usury Laws: Restrict the amount of interest companies, not banks, can charge • In North Carolina, it is 8%. Lend neighbor $100 loan can only receive $8 from interest

  11. Bankruptcy • Debts are so large they can’t be paid back • Most of what a debtor owns is sold or given to creditors • Takes 10 years to reestablish credit • States can become bankrupt too

  12. Financial Institutions • Commercial banks: Main functions are accepting deposits, lending money, and transferring funds. • Savings and loan: Very much like commercial banks. Normally smaller banks. • Savings banks: Original purpose was to help those overlooked by large banks. Sometimes charge higher interest rates. • Credit Unions: Offer high interest on saving and low interest on loans. Must be a member to use their services. • Finance Companies: Charge high interest rates. Used by those with bad credit history.

  13. Consumer Rights • Consumer – someone who buys a product or service (YOU!) • Types of Income • Disposable Income – money remains after taxes taken out. • Money to pay for house, car, etc. • Discretionary Income – money remaining after paying for necessities • Either save or spend it

  14. Consumer Rights cont. • Consumerism – a movement to educate buyers on purchases and to make sure products are safe • Congress laws – Pure Food and Drug Act in 1906 • Private groups – BBB or Better Business Bureau • Consumer Bill of Rights • Consumers have… • Right to a safe product • Right to be informed • Right to choose • Right to be heard • Right to redress

  15. Consumer Responsibilities • Smart Buying Strategies • Info on products • Watch out for advertising • Comparison shopping – find out prices on product from different stores/internet • Brand Name vs. Generic • When product fails • Report it • Check the warranty • Keep a copy of records • Be calm • Make Fair complaints • Ex.

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