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