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 ID: 367748
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Slide1
Consumer CreditSlide2
Forms of consumer borrowing
Loans: From a bank, a lending institution, personal (Family, Friends)
Credit Cards:
Typically high interest cards used to make purchasesSlide3
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 Slide4
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%Slide5
Unsecured Loans
Not backed by any collateralTypically based on credit history
Generally has a higher interest rate because of the risk
Most Credit Cards are considered unsecured for this reasonSlide6
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 wellSlide7
Cont…
Not all banks charge the same interest ratesWho would typically have the lowest rate?
Many banks offers lower rates to new customers to “draw” them inSlide8
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 RatesSlide9
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? Slide10
Credit Cards
Must fill out an application to get oneRegular Charge Accounts
: Must pay off the balance from month to month
Revolving Charge Accounts
: Allows user to carry a balance, but charges interestSlide11
Sources of Credit Cards
Most Credit Cards come from: VISA
MasterCard
Discover
American ExpressSlide12
Credit Cards
Consumers can also get a bank issued credit cardThey can also come from stores, gas stations, etc. Slide13
Credit Card Incentives
Some organizations will offer incentives to get you to use their services
First year without interest
Low interest rate
Free GasFrequent Flyer Miles
Cash back
ClothingSlide14
Activity
Write a list of all the places you could apply for a credit in Springfield if you were 18Slide15
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 accruedSlide16
Credit Card Costs
Limits and PenaltiesCredit 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)Slide17
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 Slide18
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?Slide19
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