Going into Debt Credit CREDIT Receipt of funds to buy goodsservices now with the promise to pay the funds back at a future date PRINCIPAL Amount originally borrowed INTEREST Amount paid back to the lender in addition to the Principal ID: 251840
Download Presentation The PPT/PDF document "Credit" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Credit
Going into DebtSlide2
Credit
CREDIT
Receipt of funds to buy goods/services now with the promise to pay the funds back at a future date
PRINCIPAL
Amount originally borrowed
INTEREST
Amount paid back to the lender in addition to the Principal
The Cost of Getting a LoanSlide3
Installment Debt (Loan)
INSTALLMENT LOAN
Loan that is paid back in equal installments (amounts) for a certain period of time
Used to purchase
DURABLE GOODS
Items that will last longer than 3 years:
MORTGAGE
Installment Loan used to purchase, houses, buildings, or landSlide4
Comparing Costs
Look at the Interest Rate of the loan
Look at the Duration of the loan
Longer loan terms mean:
Smaller the Monthly Payments
Larger Total Interest PaidSlide5
Checklist for Buying on Credit
#1 – Do I need this item?
#2 – What other items could I purchase with the cash I am going to use for this purchase?
#3 – Will the satisfaction I get from the item be greater than the interest?
#4 – Have I comparison shopped for credit?Slide6
Are you Creditworthy?
Lenders decide if you are credit worthy based on these criteria:
CAPACITY
Can you pay them back?
CREDIT HISTORY/RATING
Do you have a good history of using credit?
COLLATERAL
SECURED LOAN: Backed by collateral
UNSECURED LOAN: Not backed by collateralSlide7
Establishing GOOD Credit
Establish it Early
Apply for a credit card or loan as soon as you can
Use a co-signer if possible
Purchase something each month
Nothing big; just a normal purchase
Pay the card off EACH MONTH
If it is a loan make sure you make your payments ON TIME!!Slide8
Financial Institutions
Commercial Banks
Savings & Loan Associations
Saving Banks
Credit Unions
Finance Companies
Consumer Finance CompaniesSlide9
Understanding Credit Cards
Take ChargeSlide10
What is a Credit Card?
Is a credit card open-end or closed-end credit?Slide11
Credit Card Interest
The cost of credit expressed as
a yearly interest rate
Rate at which interest is charged is referred to as:
Annual Percentage Rate (APR
)
Interest is charged
each month
the balance is not paid in
fullSlide12
Minimum Payment
Payment Made
Time
to pay off
card
Total
amount
of interest paid
Total
amount paid
Full Payment
$1,500
1 month
$0
$1,500
Partial Payment
$135
1 year
$125
$1,625
Minimum Payment
$30
11 years
$1,413
$2,913
To prepare for her first semester of college, Miranda purchased a new computer for $1,000 and textbooks for $500, spending a total of $1,500 on her credit card charging 15% APR. How much would Miranda pay in interest if she makes the minimum payment?
A minimum payment is due
each month
the card has a balanceSlide13
Credit Card = Helpful Financial Management Tool…
if managed responsiblySlide14
Develop a Positive Credit History
Credit card use can have a positive
or
negative impact on your credit history
Follow these positive behaviors:Slide15
Convenient Payment Tool
How is a
credit card a convenient payment tool?
Be conscientious of all credit card purchases to not overspend!Slide16
Protect Yourself from Unauthorized Charges
Report lost or stolen cards immediately!
Check your statements monthly!Slide17
Safer Online Shopping
What is the difference between a credit card and a debit card?Slide18
Should you choose “debit” or “credit” at a point of sale (POS)?Slide19
Additional Benefits
Would you be willing to pay higher/additional
fees
or higher interest rates to
obtain
credit card benefits? Explain.
May charge additional fees or higher interest rates
Carefully evaluate if the benefits outweigh the costSlide20
Credit CardsAdvantages & DisadvantagesSlide21
Credit CardsAdvantages & Disadvantages
Convenient payment tool
Useful for emergencies
Often required to hold a reservation
Able to purchase “big ticket” items and spread out payments
Protection against fraud
Opportunity to establish a positive credit history
Online shopping is safer than using a debit
card
Possibility of receiving bonuses
Interest can be costly when a balance is revolved
Additional penalty fees may apply
Tempting to overspend
If not used responsibly, it will have a negative impact on your credit scoreSlide22
How Do I Obtain a Credit Card?
Credit card companies send
pre-approved
credit card applications in the mail when the individual has passed the initial credit checkSlide23
Obtaining a Credit Card
If a credit card is not managed responsibly, what impact does that have on a co-signer?