Introduction

1. Borrowing Basics

2. Introduction • Instructor and student introductions • Module overview Borrowing Basics

3. Student Introductions • Your name • Expectations, questions, and concerns about borrowing money Borrowing Basics

4. Purpose Borrowing Basics: • Describes how credit works and the types of credit available. • Helps you determine if you are ready to apply for credit. Borrowing Basics

5. Objectives By the end of this course, you will be able to: • Define credit. • Explain why credit is important. • Distinguish between secured and unsecured loans. • Identify three types of loans. Borrowing Basics

6. Objectives (Continued) • Identify the costs associated with getting a loan. • Explain why it is important to be wary of rent-to-own, pay-day loan, and refund anticipation services. • Determine if you are ready to apply for credit. Borrowing Basics

7. Agenda and Ground Rules • 60 – 90 minutes long • One 10-minute break • Training methods • Class participation Borrowing Basics

8. Credit • Credit is money you borrow to pay for things. • It is also called a loan. • “Good” credit means making payments on time. • “Bad” credit means it will be harder to borrow in the future. Borrowing Basics

9. Why Credit Is Important • It can be useful in emergencies. • It’s more convenient than carrying cash. • It lets you make large purchases. • It can affect your ability to get employment, housing, and insurance. Borrowing Basics

10. Collateral Property or another asset you promise to give to the bank if you can’t repay your loan. Borrowing Basics

11. Collateral Items Car Property Borrowing Basics

12. Types of Loans • Consumer installment loans • Credit cards • Home loans Borrowing Basics

13. Consumer Installment Loan A loan used to pay for personal expenses: • Automobile • Computer • Furniture • College tuition Borrowing Basics

14. Credit Cards Give you the ongoing ability to borrow money for: • Household, • Family, and • Personal needs. Borrowing Basics

15. Home Loans • Home purchase loans • Home refinance loans • Home equity loans Borrowing Basics

16. Practice Exercise – Types of Loans Instructions: • Read the description of the purchase to be made. • Fill in the blank with the name of the most appropriate loan type for that purchase. Borrowing Basics

17. The Cost of Credit • Fees • Interest Borrowing Basics

18. Fees • Annual maintenance fees • Service charges • Late fees Borrowing Basics

19. Interest The money financial institutions charge for letting you use their money. The rate of interest is either: • Fixed • Variable Borrowing Basics

20. How Much Does Credit REALLY Cost? • Amount financed $5,000.00 • APR 12% • Finance charge $600.00 • Total paid $5,600.00 Watch out for “penalty APRs” and “universal default” on credit cards. Borrowing Basics

21. Practice Exercise – Borrowing Money Responsibly Instructions: • Read each question carefully. • Answer the question. • Be ready to support your answer. Borrowing Basics

22. The True Cost of Alternative Financial Services • Rent-to-own services • Pay-day loan services • Refund anticipation services Borrowing Basics

23. Rent-to-Own Services • You use the item by making monthly or weekly payments. • The store owns the item until you make your final payment. • Using rent-to-own services is more expensive than getting a consumer installment loan. Borrowing Basics

24. Pay-Day Loans Loans that: • Are made for a fee to people who need money right away. • Are paid back with the borrower’s next paycheck. • Are renewed for an additional fee if not paid off in the agreed-on time period. • Should be used only for emergencies. Borrowing Basics

25. Refund Anticipation Loans • These short-term loans are secured by your income tax refund. • The money for the loans comes from a bank or finance company. • They are more costly than you might think. Borrowing Basics

26. The “Four Cs” of Credit Decision Making • Capacity • Capital • Character • Collateral Borrowing Basics