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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 - PowerPoint PPT Presentation
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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 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
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%
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
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
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
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
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?
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
Sources of Credit Cards
Most Credit Cards come from: VISA
MasterCard
Discover
American Express
Credit Cards
Consumers can also get a bank issued credit card
They can also come from stores, gas stations, etc.
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
Activity
Write a list of all the places you could apply for a credit in Springfield if you were 18
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
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)
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
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?
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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