Consumer Credit- Flashcards
Consumer credit-
generally thought of as credit for personal items (except homes) that people want or need such as clothes, vehicles & so on.
Credit-
an arrangement between you & another party where you receive goods or services now & arrange to pay later.
Grace period-
20 to 25 days to pay for the item before the interest is charged
Closed-end credit (consumer loan) -
a one time loan that you pay back over time in payments of equal amounts. Interest is charged on the amount lent & involves a specific amount & purpose of the loan. Commonly used for mortgages, car loans, & installment loans for appliances & furniture. Seller may hold the title or ownership of the item until loan is payed off.
Installment sales credit-
A loan that allows you to buy an item by paying a down payment & then agreeing to pay a set amount of money in installments until the loan & interest are paid off. Involves direct load of money ( for home improvements or other personal purposes) often no down payment required & payments will make a specific amount over time.
Single lump credit-
Used to buy a single item like a piece of furniture. A loan that needs to be repaid on a particular day. The period of the loan is for 60 or 90 days & at the end of that time the entire amount plus any interest is due. May be offered to eligible costumers to encourage purchase.
Open end credit- (revolving credit)
loans made on a revolving basis with the repayment period not set. Not typically used for single purchase but many purchases over time. Payments change every month as the balance of the loan changes with new purchase or interest. Lender pre-approves an individual for a particular amount of money called a line of credit. Individuals are free to use any of tht amount as long as it is payed back on specified times at specified amounts.
Credit cards-
Most used form of open credit. Can be used in vast numbers of locations including most retail stores, online sites, & most businesses. Often required for activities like renting cars, booking hotels, buying airline tickets & shopping online.
Retail cards-
Cards retail businesses offer similar to credit cards which can only be used at that store.
Bank line of credit-
Revolving check credit. Prearranged loan amount that you can access by writing specific checks. May be finance charges based on the amount of credit uses rather than having interest charged on the amount of available credit.
Banks-
Common source of consumer credit. Typically offer closed end loans & increasingly are offering open end loans. Look for individuals with an established history of credit. Interest & other fees vary on types of credit & may require some form of security of forms.
Credit unions-
Tend to loan only to members although there may be exceptions. Large loans may be subjected to approval by committee members and borrowers may be required to have a co signer or collateral. Credit union may require that automatic payroll deductions be taken out to pay a loan off.
Consumer finance companies-
More likely to offer unsecured loans & are more likely to lend to individuals without an established credit history. The application process for a loan or credit is often quite speedy w approval happening in less than a day
In order to receive consumer credit you need to?
Apply for credit & be approved by the lending institutions
What are the 5 factors that influence someone’s “creditworthiness”?
Capital- assets you currently own
Capacity- perceived ability to pay back the credit or loan
Collateral- an asset you are willing to use to back up a loan.
Character- age,education,previous credit history& income
Conditions- location, economic opportunities
Best way to avoid credit problems?
Use credit wisely
Avoid using credit for everything
Avoid interest & other fees
Balances below 30% of the total credit are advisable.
TRUE
Convenience users-
People who pay off their balances every month & avoid the finance & interest charges
Borrowers-
Those who don’t pay off their balances each month
Debit cards-
Used to electronically subtract money from a savings or Checking account to pay for a purchase.
Smart cards-
Computer chip embedded that carries a great deal of information such as drivers license, medical history,and health care information.
Smart cards are used for?
Ability to buy a plane ticket & automatically tracking your frequent flyer miles at the same time
Stored value cards-
Gift cards & prepaid cards. Have a prepaid amount of money that is available for use
Secured credit card-
You submit money to the financial institution and then you are able to use your credit card up to the amount to deposited
