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Consumer Credit

Consumer Credit. Forms of consumer borrowing. Loans : From a bank, a lending institution, personal (Family, Friends) Credit Cards: Typically high interest cards used to make purchases. Secured Loan. A loan backed by something of value pledged to insure payment

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Consumer Credit

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  1. Consumer Credit

  2. Forms of consumer borrowing • Loans: From a bank, a lending institution, personal (Family, Friends) • Credit Cards: Typically high interest cards used to make purchases

  3. Secured Loan • A loan backed by something of value pledged to insure payment • If you own your house this can be used as assurance that you will repay the loan • The property pledged to back a loan is called Collateral

  4. Secured Loans • A secured loan is safe for the lender because if they do not get paid back, they get the asset that has been pledged • Most Secured Loans are installment loans • Repaid in a certain amount of payments with a certain amount of interest • i.e.: 60 months at 8%

  5. Unsecured Loans • Not backed by any collateral • Typically based on credit history • Generally has a higher interest rate because of the risk • Most Credit Cards are considered unsecured for this reason

  6. Banking Institutions as sources of loans • Most common lending institutions are: Banks, Savings and Loans Associations, and Credit Unions • Savings and Loans Associations typically give money for real estate, however, they often give personal loans as well

  7. Cont… • Not all banks charge the same interest rates • Who would typically have the lowest rate? Many banks offers lower rates to new customers to “draw” them in

  8. Other Sources of Consumer Loans • Finance Co: Lend to people with poor or no credit history, higher rates • Life Insurance Co: Users borrow against the value of their life insurance policy, lower rates • Credit Card Cash Advances: Can be used to get cash, Very High Interest Rates • Pawn Brokers: Pawn an asset for cash, High rates • Rent-to-Own: Can get rent an item until you own it, Highest Interest Rates

  9. Checkpoint • What is the difference between a Secured and Unsecured loan? • Why would you choose one over another? • What is the best source of credit?

  10. Credit Cards • Must fill out an application to get one • Regular Charge Accounts: Must pay off the balance from month to month • Revolving Charge Accounts: Allows user to carry a balance, but charges interest

  11. Sources of Credit Cards • Most Credit Cards come from: • VISA • MasterCard • Discover • American Express

  12. Credit Cards • Consumers can also get a bank issued credit card • They can also come from stores, gas stations, etc.

  13. Credit Card Incentives • Some organizations will offer incentives to get you to use their services • First year without interest • Low interest rate • Free Gas • Frequent Flyer Miles • Cash back • Clothing

  14. Activity • Write a list of all the places you could apply for a credit in Springfield if you were 18

  15. Credit Card Costs • Annual Fees: An annual charge a lender has (could be $15, or $100) • Interest: Amount that is computed based on owed monies ( 13% APR) • Grace Period: Time between billing date and paying date when no interest is accrued

  16. Credit Card Costs • Limits and Penalties • Credit Limit: The maximum amount you are allowed to charge to your account • If you go over this amount, you will be penalized, they’ll typically charge you an overdraft fee ($15-$50)

  17. Control Credit Card Costs • If you can, get a loan instead of high interest credit card • DO NOT just make the minimum payments • When choosing a card, choose the one with the lowest interest rate • Do your homework, do not just make hasty decisions

  18. Activity • Alex Jones has a credit card with a 12% interest rate. His balance is 1000 dollars. How much are his monthly payments for interest alone? • Jessica wants a new Mac, she does not have the money to buy one right now. What are her options? What are the + & - of each alternative?

  19. Try These & Math of Money • Complete the Math of Money on page 336 together. • Complete Try These and Math of Money on page 339, on your own. 1-8 & 13

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