Chapter 15 Flashcards
What is a creditor and debtor?
Credit is the privilege of using someone else’s money to purchase an
item or service now and then pay for it later
Using credit means a transaction has occurred between a creditor and
debtor.
➢ The creditor is the person or business that sells on credit or grants a loan.
➢ The debtor is the person or business that buys on credit or obtains a loan.
What is a credit card? What are advantages and disadvantages?
Credit cards offer you a line of credit that can be used to make purchases, balance transfers and/or cash advances and requiring that you pay back the loan amount in the future.
The pros of credit cards range from convenience and credit building to 0% financing, rewards and cheap currency conversion. The cons of credit cards include the potential to overspend easily, which leads to expensive debt if you don’t pay in full, as well as credit score damage if you miss payments.
What is a loan?
Loans can be used to make a wide variety of purchases except real estate.
Loans, with a variety of repayment options, can be obtained from most Canadian financial institutions.
What is the cost of credit?
Factors that affect the cost of credit include
1. Principal/amount borrowed
2. The term for repaying the loan
3. Current interest rates
4. Inflation and economic conditions
5. Security or collateral
6. Risk and credit rating
What are the 3 C’s of Credit?
Character- are you a good person?
Capacity- Can you pay it back?
Collateral- Property or any other loans, to gurantee to pay back a loan.
What is a credit rating?
A credit rating is an indication of the level of risk that a consumer,
business, or government will pose if credit is granted.
* Good → no outstanding balance on credit cards, pays bills on time, keeps
debt to reasonable level
* Low → too many credit cards, pays
What is collateral?
Collateral is an item of value pledged to secure a loan. Collateral reduces the risk for lenders. If a borrower defaults on the loan, the lender can seize the collateral and sell it to recoup its losses. Mortgages and car loans are two types of collateralized loans.
Describe the different types of credit.
The average Canadian has at least three different credit cards. The three basic types of cards issued to consumers come from banks (the most popular), retailers, and travel and entertainment businesses.
There are more than 600 different credit cards in Canada!!
