Ch 16 Flashcards
money borrowed to buy something now, with an agreement to pay later; have to be 18
credit
the history of credit in the early years:
general store (dollar store, CVS)
history of credit 1990
increased understanding of credit
credit today=
1990’s record # of brankruptcy’s
person borrowing money
borrower or debtor
loaning the money
creditor
all your assets added (what you own)—-what you owe (liabilities)
capital
money/net worth you have after debts
capital
pledging to repay the loan
collateral
on credit, it’s the $$ you borrow
principal
anything you have to pay back over and above the principal
finance charge
you pay these in incriments (pay $400/month for 36 monts)
ex. mortgage, car payment
AKA close-ended
installment agreement
whatever you take the loan out for, is used as collateral
secured loan
ex. of non-secured loan =
student loan
List the advantages of consumer credit
- purchasing power
- emergency funds
- convenience
- deferred billing
- safety
List the disasdvantages of consumer credit
- higher prices
- finance charges
- tie up income
- overspending
QUALIFICATION for credit is based on 3 things:
income
financial position
collateral
the value of property you possess (such as bank accounts, investments) after deductig your debts
capital
represents cash outflow and will be compared to your cas inflow (income)
your debt
open 30 day accounts, can always use a credit card
open-ended credit
ex. installment agreement
closed-end credit
service now, pay later
ex. cell phone, cable
service credit
What are some sources of credit?
- retail stores
- credit card companies
- banks and credit unions
- finance companies
- pawnbrokers
- private lenders (mom, dad, friends)
the free period which allows you to avoid a finance charge if you pay in full before the due date
grace period
pre-established amount that can be borrowed on demand
line of credit
money borrowed against the credit card limit
cash advance
unlicensed leaders who charge illegal interest rates
loan sharks
a service to customers that allows you to charge now and not be billed for several months
deferred billing
in some states, maxium interest rates are set by _____ laws
usury
a legal business where loans are made based on the value of mercandise used as collateral
pawnbroker
something of value that can be sold to pay a debt is often referred to as _______
collateral
finance companies charge higer rates of interest on loans because ______
they take more risk
