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Chap. 6-Consumer Cr
Business and Finance-Glencoe
| Question | Answer |
|---|---|
| Credit | An arrangement to recieve cash, goods, or services now and pay for them in the future |
| Consumer credit | The use of credit for personal needs |
| Creditor | An entity that lends money |
| Credit uses | 1. You can buy something on credit now for less money than it will cost to pay in cash later 2. If you live in an area that lacks good public transportation you may need a vehicle to travel |
| Credit misuses | 1. If you cannot afford to buy a high monthly payment is probably not a good idea to borrow money 2. The cost of credit decreases the amount of money you will have in the future 3. The longer you wait the more you have to pay-interest |
| Factors to consider before using credit | 1. Do you have the cash you need for the down payment? 2. Do you want to use your savings instead of credit? 3. Can you afford the item? 4. Could you use the credit in some better way? 5. Could you put off buying the item? 6. Costs of usin credit? |
| Interest | The price that is paid for the use of another's money |
| Advantages of credit | 1. It lets you enjoy goods and services now perhaps when the funds are low and pay for them later 2. Credit cards allow you to combine several purchases making just one monthly payment 3. Shopping online 4. Shop. without carrying a lot of cash is safe |
| Disadvantages of using credit | 1. Credit costs money 2. The temptation to buy more than you can afford is the greatest disadvantage 3. If you fail to pay, you can lose good credit rep. 4. doesn't increase your total purchasing power 5: does not mean you have more money |
| Closed-End credit | Is credited as a one time loan that you will pay back over a specified period of time and payments equal amount Ex: mortgage |
| Open-end credit | Is credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services |
| Line of credit | The max amount of money that the creditor will allow a credit user to borrow |
| Loans | A borrowed money with an agreement to repay it with interest within a certain amount of time |
| Inexpensive loans | Parents or family members |
| Medium-priced loans | Commercial banks Saving and loan associations |
| Expensive loans | Finance companies Retail stores |
| Home equity loans | Is a loan based on the difference between the current market value of your home and the amount you still owe on the mortgage |
| Grace period | A time period during which no financial charges will be added your account |
| Finance charge | The total dollar amount you pay to use credit |
| Debit cards | Allows you to electronically subtract money from your savings or checking account to pay for goods or services |
| Smart cards | A plastic card equipped with a computer chip that can store 500 times as much data as a normal credit card It can be used to but an airline ticket, store it digitally, and track frequent flyer miles |
| Travel and entertainment (T&E) cards | The balance is due in full each month. They are thought of like credit cards because users do not pay for goods or services when they purchase them |
| Net income | The income you receive (take-home pay, allowance, gifts,interest) |
| Debt payments-to-income ratio (DPR) | Monthly debt payments/ monthly net income |
| Annual percentage rate (APR) | The cost of credit on a yearly basis, expressed as as a percentage |
| Variable interest rate | Is based on changing rates based in your banking system- ypthe interest rate will vary from time to time |
| Collareral | A form of security to help guarantee that the creditor will be repaid-such as savings, or selling some sort of property |
| Simple interest | The interest computed only on the principal, interest rate, and the amount of time for which the principal is borrowed |
| Calculating simple interest | Principal x interest rate x amount of time =simple interest |
| Minimum monthly payment | True smallest amount you can pay and remain a borrower in good standing |
| THe five C's of credit | Character Capacity Capitol Collateral Credit history |
| Credit rating | The measure of s person's ability and willingness to make credit payments on time |
| Credit and equal opportunity (The factors a lender cannot consider according to law) | Age- a credtr may not turn you down or decrease your credit Public assistance- you may nt be denied cretin it because y receive social security or public assistance Housing loans- race/neighborho |
| What if your credit is denied | The ECOA gives you the right to know the reasons |
| Credit bureau | An agency that collects info in how promptly people and businesses pay their bills |
| Your credit file contains: | Name Address Social security number Birth date Previous and current employer etc. |
| Who can obtain a credit report: | Identified persons for approved purposes It may be supplied I'm response to a court order or by your own request Legitimate business needs |
Created by:
Ambergurl47
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