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TYPES OF CREDITIntroduction to Business and Marketing
OBJECTIVES
Identify the sources of credit
Understand the types of credit
THE MAIN IDEA There are many different types of credit plans
including
charge accounts
credit cards
single payment loans
installment loans
mortgage loans
Length of Loans
• One year or lessShort-term Loan
• 1-5 yearsMedium-term Loan
• More than 5 yearsLong-term Loan
Sources of Credit
Charge Accounts
Credit Cards
Banks and other
Financial Institutions
Seller Provided
Credit
Consumer Finance
Companies
Charge Accounts Credit provided by a store or
company for customers to
buy its products
Can usually only be used at
that store
Credit Cards Credit cards are like charge
accounts, but some can be used in
many different places.
Some credit cards have annual
fees, which can range from $25-
80.
Credit card companies earn
money from the interest they
charge and annual fees
Types of Credit Cards Single Purpose Cards - can be used to
buy goods or services only at the
business that issued the card
Multipurpose Cards - also called bank
credit cards because banks issue them
Can be used at many different businesses
Travel and Entertainment Cards –
holders must pay the full amount due
each month and pay an annual fee
Banks and Other Financial Institutions
Want to lend money to
people with good credit
ratings
Credit unions only lend
money to credit union
members and employees
Single-Payment Loan A debtor pays back a single-
payment loan in one payment,
including interest
Many farmers secure single-
payment loans in the spring
and pay back in fall
Installment Loan Loans repaid in regular payments
over a period of time
Examples
Student loans
Car loans
Home improvement loans
Mortgage Loan
Installment loan that lasts a long time
Usually 15-30 years
Used to purchase real estate (home)
Home serves as collateral
Seller-Provided Credit
Many stores provide credit for their
customers
Clothing, furniture, and appliance stores as
well as car dealerships are among those
that offer credit to customers.
Consumer Finance Companies
Specialize in loans to people who might
not be able to get credit elsewhere
These loans are more expensive
because the risk for the lender is high
Other Types of Loans
Payday advance
services offer short-
term loans until
payday
Payday advance
services charge high
fees and interest
Other Types of Loans
A pawnshop loan is based on the value
of something you own that is left with a
pawnbroker as security against money
borrowed
Items can be bought back later
Think about it!
Think about the following questions and
discuss them with your pod.
Formulate an answer and be prepared to
share your answer with the class.
Question 1
Do you think people who are responsible
and pay all their debts on time should
have the same interest rate as people
who are delinquent on payments?
Why or why not
Question 2
Do you think it is fair for payday loans
and car title loans to have higher
interest rates than regular bank loans?
Why or why not
Activity
Complete the chapter 25 Review and
Activities
Review Key Concepts 1-5
Critical Thinking 6-13
Be prepared to share answers with the class