Chapter 16 Vocab Flashcards
Use of someone else’s money, borrowed now with agreement to pay back later
Ties up family income
Credit
A person who borrows money from others
Debtor
Person or business that loans money to others
Creditor
Represents cash flow
When your earnings exceed your expenses, you have the capacity to take on debt
You are solvent
Income
Based on your capital and indicates responsibility
Net worth
Financial Position
Value of property that you possess (bank accounts, investments, real estate) after deducting your debts
Capital
Property pledged to assure repayment of a loan
Collateral
Amount borrowed
Principal
Total dollar amount of all interest fees you pay for the use of credit
Finance Charge
Principal and interest for the time you have the loan
Balance due
Least amount you pay under your credit agreement
Minimum Payment
Increase interest rate on balance
Late fees
Purchasing power Emergency funds Convenience Deferred billing Proof of purchase Safety Line of credit
Advantages of credit
Higher cost Finance charges Ties up income Strains family budget OVERSPENDING
Disadvantages of credit
Where a borrower can use credit up to a states limit
Examples- charge cards (visa, MasterCard, etc)
Open-end Credit
Can be used again and again up to a stated limit
Revolving Accounts
Loan for a specific amount that you must repay in full, including all finance charges, by a stated due date
Examples-Car, Furniture, Major Appliances
Closed-End Credit
Installment Loans
Providing a service for which you will pay later
Examples- Utility Services, provided then paid
Service Credit
Offer credit cards for just that store
Retail Stores
Visa, MasterCard, American Express, Discover
Credit Card Companies
Credit union rate = lower than bank
Banks and Credit Unions
Organization that makes high risk customer loans
Unions only loan to their members
Finance Companies
Unlicensed wonders who charge illegally high interest
Loan Sharks
State law that says a max interest rate then maybe charge for customer loans
Usury Laws
Legal business that makes high interest loans based on the value of personal possessions pledged as collateral
Pawnbrokers
Parents, family members, may or may not charge interest or request collateral; get a promissory note
Private Lenders
Terms of the credit card agreement affect the overall cost of the credit you will be using
Credit Card Agreements
Annual % rate, cost of credit expressed as a yearly %
APR
Time frame in which you may pay your current balance in full and incur no interest rates
Grace Period
Annual fees
Transaction fees
Penalty fees
Fees
