ch 25 Flashcards
credit
agreement to obtain money goods or services now in exchange for a promise to pay in the future.
depends on the creditors confidence that the debtor can and will pay
creditor : lends money or provides credit
debtor : borrows money or uses credit
interest
creditors charge a fee for using their money
3 factors affecting amt of interest to be paid
interest rate (percentage of total amt borrowed)
length of loan (longer, more interest)
amount of loan (larger, more interest)
uses of credit
consumer credit : used by ppl for personal reasons
commercial credit : used by businesses (to buy money materials machinery trucks)
they often pass along the cost of interest to consumers by charging higher prices
the federal gov uses credit for services and programs like military spending
state and locsl govs use it for highways public housing stadiums water system
advantages of credit
convenient (dont have to carry lots of cash, dont have to save bc u can use the item right away, good for emergencies)
credit ratings : measure the ability and willingness for someone to pay their debts on time (gives info of ur responsibility and credit risk to lenders, helps u keep track of spending as it adds to ur credit card)
contributes to economic growth (allows consumers to buy more goods and services and businesses must hire more workers and produce more goods to keep up with demand)
disadvs of credit
easy purchasing power encourages unnecessary purchases
items cost more bc of interest (more items u charge and the longer u take, more interest)
you commit some of ur future income (as bills rise, u may have trouble paying it back.
at one point u may reach ur credit limit (cannot charge anymore)
late or missed payments lower ur credit rating making it hard to get credit in the future)
before using credit, consider
do u have the cash needed for the down payment
do u want to use ur savings instead
can u afford the item
could u use the credit in some better way
could u put off buying the item for a while
what are the costs of using credit
length of loans
short (1 year or less)
medium (1 to 5)
long (more)
the risk a creditor takes in lending money or selling on credit d
is imp in determining the cost of credit
charge account
credit given by store or comp for cudtomers to buy its products. customers w those accs can use their credit to buy now and pay later. when the bill arrives they can pay part of the total amt ower or the entire amt
credit card
like charge accs but some can be used in many diff places. those issued by banks can be used in diff stores including comps that sell on the internet
some of the cards have annual fees ranging from 25 to 80 dollars. companies earn money from the interest they charge as well from annual fees and penalties
single purpose
multipurpose
travel and entertainment
types of credit cards
single purpose : buy goods or services only at the business that issued the card
each month, cardholders receive a statement listing all purchases they made in the last 30 days and they can pay part or whole. interest is charged on the unpaid balance
multipurpose (bank credit cards) :
consumers can pay them off or pay only part of the bill with interest on the unpaid balance
used at many diff stores restaurants and more (mastercard and visa)
travel and entertainment : holders must pay the full amount due each month, accepted worldwide for expenses connected w travel busi and ent (restaurants hotel bills csr rentals airline tickets)
banks and other financial institutions providing loans
single payment : debtor pays it back in one payment including interest
installment : loans repaid in regular payments over a period of time. debtor receives money for a certain period where they make equal monthly paymente
mortgage loan : a form of installment loan but it is written for a long period (15 to 30 years). used for real estate. the home serves as collateral : smth of value the bank can take if a borrower doesnt make the required loan payments
seller provided credit
stores provide credit for rheir customers (car dealerships clothing furniture
seller provided credit
stores provide credit for rheir customers (car dealerships clothing furniture
consumer finance companies
specialize in loans to ppl who might not be able to get credit elsewhere. they cost more bx theres greater risk
consumer finance companies
specialize in loans to ppl who might not be able to get credit elsewhere. they cost more bx theres greater risk
consumer finance companies
specialize in loans to ppl who might not be able to get credit elsewhere. they cost more bx theres greater risk
consumer finance companies
specialize in loans to ppl who might not be able to get credit elsewhere. they cost more bx theres greater risk
other types of loans
payday advance services : shortterm loans until payday (high fees and interest)
pawnshop loan : based on the value of smth u own that is left w a pawnbroker as security against money borrowed. u can later buy it back
borrow until payday loans are usually 5 to 14 days and are high cost
other types of loans
payday advance services : shortterm loans until payday (high fees and interest)
pawnshop loan : based on the value of smth u own that is left w a pawnbroker as security against money borrowed. u can later buy it back
borrow until payday loans are usually 5 to 14 days and are high cost
