Ch. 6 Intro to Consumer Credit Flashcards
Credit
An arrangement to receive cash, goods, and services now and pay for them in the future.
Consumer Credit
The use of credit for personal needs
True or False: Consumer credit is not a major force in the American Economy
False. Any forecast or evaluation of the economy includes consumer spending trends and consumer credit
Which generation holds 60% of outstanding credit card debt?
Baby Boom Generation
What is the trade-off a person will have to make with using credit?
They will have less money available to spend in the future
How do people pay off consumer credit?
Through payment plans based on future income
What are some advantages of using credit?
- It is safer to use credit for travel and online purchases
- They may offer added benefits at no extra charge
- They indicate that you are a responsible individual
What are some disadvantages of using credit?
- If you do not repay your loan, you could lose your good reputation, income, and valuable property.
- You may even need to go to court and file bankruptcy
Closed-end Credit
One-time loans that the borrower pays back in a specified period and in payments of equal amounts
Open-end Credit
Loans are made continuously and the borrower is billed periodically for at least a partial payment
What are the three most common types of closed-end credit?
Installment sales credit, installment cash credit, and single lump-sum credit
What is Installment sales credit and how do you pay it off?
- A loan that allows you to receive merchandise (ex. large appliances or furniture).
- You make a down payment and sign a contract to repay the balance (plus interest and service charges) in equal installments over a specified period.
What is installment cash credit and how do you pay it off?
- It is a direct loan of money for personal purposes, home improvements, or vacation expenses.
- You make no down payment and make specified payments over a set period.
Single lump-sum credit
A loan that must be repaid in total on a specified day (usually 30 - 90 days)
What are the three most common types of open-end credit?
- Cards issued by banks and department stores
- Travel and entertainment cards
- Overdraft protection
What is the main difference between open-end and closed-end credit?
With open-end credit, you do not need to apply to make a single purchase. You can use it to make any purchases as long you do not exceed the line of credit
Incidental credit
Credit arrangement that has no extra costs and no specific repayment plan
Revolving check credit (also called bank line of credit)
Prearranged loan for a specified amount that you can use by writing a special check
List 5 tips to remember when choosing a credit card
- Choose a card with an interest-free grace period if you pay your bills in full.
- Department stores and gasoline companies are good places to obtain your first credit card
- Beware of cards that offer no fee/low interest but charge interest as soon as you purchase something
- Plan your budget more carefully if you are paying the minimum amounts on monthly statement (causing you to pay more interest)
- If you have a bad credit history, look for a savings institution that will give you a secured credit card (the line of credit is determined by amount in deposit).
What is the difference between convenience users and borrowers?
Convenience users pay off their balances in full each month while borrowers carry their balances beyond the grace period and pay finance charges
What are Smart Cards and what are their advantages?
- They are cards embedded with a computer chip that combines credit cards, driver’s licenses, healthcare IDs, flier miles, and telephone cards.
- They provide security, confidentiality, portability, and convenience
Co-branding
Linking of credit card with business trade name offering points or premiums toward the purchase of a product/service.
How many credit cards are being used in the US?
Over 1.1 billion
True or False: You are responsible for charges on a debit card that you did not accept
False. If you report a lost or stolen debit card within two days, your liability is limited to $50. After two days, your liability is $50 plus any amount penalty for not notifying your issuer.
Mobile Commerce
Using smartphones to make purchases
Home Equity Loan
Loan based on the current market value of a home less the amount still owed on the mortgage.
Depending on the value of your home, what % of its value can you borrow?
Up to 85%
What may happen if you miss payments on your home equity loan?
You can lose your home
What are seven things you should consider when choosing a home equity loan?
- See if lender protects you from rising interest rates
- Compare lender fee with other institutions
- See if lender charges an inactivity fee
- See if lender has right to change terms/conditions of your loan or terminate your loan
- Double check to see if interest on your home equity loan is deductable
- Evaluate reasons for using equity in home for loans
- Know full costs and risks of home equity loans
What is the difference between a home equity loan and a home equity line of credit?
With a home equity loan, you receive the borrowed amount in a lump sum payment and it has a fixed rate of interest. With a home equity line of credit, you can borrow money multiple times from an available maximum amount.
What are five ways you can protect yourself from credit card fraud?
- Store cards in secure places
- Shred anything with account number before throwing it away
- Do not give card number over phone or online unless you initiate the call
- Double check card and receipt after transaction to make sure its yours
- Call card issuers if billing statement is incorrect or your credit cards are lost or stolen
What are four ways to protect your credit info online?
- Use a secure browser
- Keep records of online purchases
- Read the policies of websites you visit. (If you can’t find anything about their policies, shop somewhere else)
- Never give password to anyone online (even your internet service provider)
