Test 3 Flashcards
Someone is willing to loan you money-called principle- in exchange for your promise to pay it back, usually with interest
Credit
The loan amount
Principle
The amount you pay to use someone else’s money
Interest
APR
Annual percentage rate
The amount it costs you a year to use credit
APR
A yearly charge for the privilege of using a credit card
Annual fee
The dollar cost of using credit, which is calculated by a lender
Finance change
A charge for setting up a loan, usually associated with home loans
Origination fee
How long the loan lasts
Loan term
The longer the loan term, _______
The greater the costs of credit
4 Advantages of credit
- Access to cash in an emergency
- The ability to use it now
- Safety and convenience
- Earn bonus points or miles
4 disadvantages of credit
- Can lead to overspending
- Future income is tied up
- Reduces the amount of comparison shopping
- Credit purchases may cost more than cash purchases
Where do you get credit?
Banks and credit unions Auto dealers Department stores Colleges Financial institutions Federal government
Advantages of credit cards
Easy and convenient to use
Get cash when you want it
No loan term
Is a lower or higher APR good?
Lower, some can go as high as 20%
Tips for smart credit card use
Look for cards with no annual fee, a grace period, and a low APR
Allowed to make small payments, but the rest of the balance is compounding at the card’s APR
Minimum payment
How do you avoid interest charges on your credit card?
Pay your balance off in full
Most start about $500, but can go much higher
Credit limit
Money issued to students to pay for college, usually at a low interest rate
Student loans
What percentage rate are most student loans
2-8%
Money issued to future home owners
Mortgages
A maximum of ____ of your net income should go towards all of your loan payments (not including mortgage)
20%
How long are mortgage loans typically
15-30 years
A maximum of ____ of your net income should go toward paying your mortgage loan
33%
Things to look for when applying for credit
The APR The loan term Maximum amount of the loan Minimum payment amount Any annual or upfront fees Additional fees Amount of income you need to qualify
Your credit history, a record of your personal financial transactions
Credit record
What does your credit record do?
Potential lenders will thoroughly examine it and many employers check it when making hiring decisions
How to build good credit
Pay bills on time Don’t bounce checks Make regular deposits to savings account Pay your credit card bills on time Have a parent co-sign
The entire amount of money you owe to lenders
Debt
How do you get out of debt
Spend less money than you earn, the to make the minimum required payments and use the money left over to pay off the loans with the highest interest rate, and talk to a nonprofit credit counselor
What percent of Americans live paycheck to paycheck
70%
A legal process that allows someone deeply in debt to create a plan to get out of it
Bankruptcy
Allows to erase most of your debt. To qualify, you typically must be unemployed or have a very low income. Must go to financial counseling
Chapter 7 bankruptcy
Allows you to pay back some of your debts with more time. A court typically oversees the repayment plan to ensure accountability
Chapter 13 bankruptcy
First ever credit card name
Diner club
Examples of banks and credit unions
Credit cards, car loans, personal loans and home loans
Examples of auto dealers
Financing for cars
Examples of department stores
Credit cards with discounts to their stores
Examples of colleges
Student loans
Examples of financial institutions
Payday loans, money tree
Examples of federal government
Business loans
How does bankruptcy affect lenders
They must absorb loan losses they can’t recover by raising rates on other loans and services
How does bankruptcy affect borrowers
Responsible borrowers must pay higher rates to help lenders recover losses on bad loans
How does bankruptcy affect people who declare it
Their actions remain on their credit records for up to 10 years and it’ll be way harder and more expensive to borrow money
Four advantages of bankruptcy
Debts are erased
Exempted items are allowed
Certain incomes are unaffected
Cost is small
Disadvantages of bankruptcy
Cloud of credit Property is lost Some obligations remain Some debts can be reaffirmed Co-signers may have to pay
Items exempted from bankruptcy
Equity in home Motor vehicle Clothing Animals Musical instruments Jewelry Crops
Obligations not exempted from bankruptcy
Child support
Alimony
Income tax
Student loans
Protection against large scale financial loss
Insurance
The payment you make to an insurance company in exchange for it’s promise of protection and help
Insurance premium
The amount of the loss you just pay out of your own pocket before the insurance company begins to reimburse you
Deductible
The higher the deductible, the lower the _____
Premium
Things that will affect your insurance
Personal driving record Car type (more doors and slower it is, the cheaper) If you’re single and under 25 you pay more Geographic location Good grades Take drivers ed Males pay more Distance you drive
Pays for bodily injury to other people and damage to property
Liability coverage
Protects you, your family and anyone riding with you in your car
Medical payments
Protects you if you get in an accident with someone without insurance
Uninsured motorist
Types of auto insurance
Liability coverage
Medical payments
Uninsured motorist
Pays to repair your car if it’s damaged in an accident by colliding with another car
Collision
Protects you from everything except a collision
Theft, hail, flood, vandalism ect.
Other than collision
Pays the medical bills in case you or your family members become sick or injured
Health insurance
How long can you stay on your family’s insurance
Until 26
Protects your material possessions such as clothes, stereo, TV, appliances, furniture, bike, computer
Property insurance
Protects people who depend on you financially in the event of your untimely death
Life insurance
What percent of people under the age of 19 will have their identity stolen?
8%
Fastest growing white collar crime in America?
Identity theft
