MODULE 8 Flashcards
money that a lender makes available to a borrower with the understanding that the borrower will repay the money in the future
credit
fees charged by a lender on borrowed money
interest
a payment card issued to users to enable the cardholder to pay a merchant for goods and services based on the cardholder’s promise to the card issuer to pay them for amounts plus the agreed charges. (ex. visa, discover, master card, etc)
credit card
a person may borrow up to this amount based on his or her income level, debt level, and overall credit record.
credit limit
allows you to make large purchases sooner. Eliminates having to carry cash or checks. Ex. Gass bill (montly, rather than weekly). Developing good credit history saves $$$ in the future.
advantages of using credit
if you borrow too much $$$, you may have difficulty making the payments. ex. car repossessions/foreclosures.. you lose entire investment
disadvantages of using credit
(APR) the rate that factors in all the financing costs so that borrowers know exactly what they are paying and can make informed decisions
APR
by paying off credit card balance each month, you can avoid paying interest. Generally, credit cards don’t charge fees unless you carry your balance into the next month. there are premium type credit cards that charge a yearly fee. these fees usually come with incentives
fees
pay bills on time, pay off loans (cars, home, education, etc) **keep credit cards low
building credit
good credit history = lower interest rates
your credit history
organization that collects credit information about individual consumers
credit bureaus
summarizes an individual’s existing and past lines of credit. Also includes credit score
credit report
a federal law that limits the sharing of an individual’s financial information to firms that have a legal purpose to evaluate it
fair credit reporting act
created a model on which credit scores (fico scores) are calculated
fair issac corporation (FICO)
a numeric score that uses your credit history to access your credit worthiness. The 3 main companies that produce credit scores are Equifax, trans union, and experian
credit score (3 main companies)
paying the total amount for the car to avoid financing charges
paying with cash
you get a loan directly from a bank, the car dealership, finance company, or credit union. You agree to pay, over a period, the amount financed, plus a finance charge.
financing
cash paid-up front by a borrower to reduce the amount financed on a loan
down payment
the price a dealer will pay for your current car when selling you a new one. Dealer trade-in is typically thousands of dollars lower than the price possible with a person-to-person sale
trade in
covers a list of things that will be replaced at no cost if they are defective. Generally, new car warranties remain in effect for at least three years of 36,000 miles. The bumper-to-bumper warranty covers repairs to everything on the vehicle except “wear items” - tires, brake pads, etc.
warranty
documentation that is completed by an individual or business seeking to apply for a line of credit with a lending institution. The information on the application is used to determine the borrower’s credit history, employment status, and his/her ability to repay the loan amount
credit application
the measure or estimate of a person’s or other entitity’s ability to properly pay back a debt by meeting agreed obligations.
credit worthiness
the maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit
credit life
a person who agrees to pay a borrower’s debt if he or she defaults on the loan. The person asked to cosign a loan usually has a good credit score and a lengthy credit history, which greatly improves the primary borrower’s odds of approval.
co-signer
type of loan taken out to obtain a home. The home becomes the collateral. Generally, 30 year mortgage.
mortgage
allows a homeowner to borrow against the equity in his or her home. Equity is the difference between the home’s value and the amount owed to a lender
home equity lines of credit (HELOC)
a type of loan where you borrow a set amount of money all at one time. You then repay the loan over a fixed number of payments
installment loans
a preset amount of money that a bank or credit union has agreed to lend you. You can draw from the line of credit when you need it, up to the maximum amount. You’ll pay interest on the amount you borrow.
lines of credit
a sum of money borrowed to finance college or other school-related expenses. Payments are often deferred while students are in school, and for a six-month grace period after graduation.
education/training loans
a loan that has some asset pledged against the loan so that the lender is assured of winding up with some valuable asset if the borrower fails to pay off the loan. (ex. if you own land, you agree to sell the land if you can’t repay the loan)
personal loan (secured)
loans that have no collateral pledged against the loan. Usually based on good credit history.
personal loan (unsecured)
(also known as a car title loan) is a type of secured loan where borrowers can use their vehicle title as collateral.
title loans
a business that offers secured loans to people, with items of personal property used as collateral.
pawn shops
provide customers with an easy way to turn their paycheck, or other checks, into cash without having to rely on a bank account. A fee is charged for this service.
check cashing businesses
writing a check to a lender dated on payday. In exchange the borrower gets the $$$ immediately. High charges!!! Fees ranges between $15-$30 for every $100 loaned.
payday loans
also known as retail cards, are cards offered by a retailer, some can only be used for purchases with the store or its partners. Incentives include low interest rate and reward points that equal cash dollar accumulation
store credit cards
when something, usually money, is owed by one party, the borrower or debtor, to a second party, the lender or creditor.
debt
1) make a budget, and stick to it. 2) set realistic financial goals. Don’t expect to get out of debt overnight. 3) if you can’t pay cash, don’t buy it. That goes for every purchase. 4) if you use a credit card, pay on time and pay more than the minimum amount due. Monitor your credit card accounts for charges in rates or fees. 5) when you have a mortgage or auto loan and know you’ll have trouble making payments…
strategies for debt management
a process that is used to help individual debtors with debt settlement through education, budgeting and the use of a variety of tools with the goal to reduce ultimately eliminate debt.
credit counseling
overusing credit cards without the runds to pay back the borrowed money.
credit card abuse
combining several small accounts into one larger account that may be able to be financed at a lower rate
loan consolidation
a legal process in which a court takes over some of the finances of a person who is unable to pay his or her bills
bankruptcy
it happens when a homeowner fails to pay the mortgage. The lender takes ownership of the home or piece of property.
foreclosures
a process where an auto lender can take back possession of your vehicle because the loan amount was not paid back
reprossessions
in Chapter 7 bankruptcy, if you don’t want to keep an item of property that serves as collateral for a secured debt, you can “surrender” it, which means giving it back to the creditor.
surrender of collateral
a situation where a borrower is late or overdue on a payment, such as income taxes, a mortgage, and automobile loan, or a credit card account.
delinquency
a court judgment mandating that a portion of the income be diverted to resolve a debt.
garnishment
