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Lecture Focus on personal finance: An active approach to help you develop successful financial skills (2e) - Chapter 5A

Chapter 5A - Consumer credit. In this chapter, you will learn to: Analyze advantages and disadvantages of using consumer credit, assess the types and sources of consumer credit, determine whether you can afford a loan and how to apply for credit, determine the cost of credit by calculating interest using various interest formulas, develop a plan to protect your credit and manage your debts. | 5A Consumer Credit #1 Credit – An arrangement to receive cash, goods, or services now and pay for them in the future. Types of credit ??? Objective 1 Analyze Advantages and Disadvantages of Using Consumer Credit Credit Based on trust in people’s ability and willingness to pay bills when due Consumer Credit Use of credit by individuals for personal needs, except a home mortgage Dates back to colonial times; exploded after invention of cars (installment loans; traveling) A major force in our economy 5- Uses and Misuses of Credit Before you use credit for a major purchase, ask: Do I have the cash for the down payment? Do I want to use my savings for this purchase? Does the purchase fit my budget? Could I use the credit I’ll need in some better way? Can I postpone this purchase? What are the opportunity costs of postponing this purchase? What are the dollar and psychological costs of using credit for this purchase? 5- Advantages of Credit Current use of goods and services Permits purchase even when funds are low A cushion for financial emergencies Advance notice of sales Easier to return merchandise Convenient when shopping Provides a record of expenses 5- More Advantages of Credit One monthly payment Safer than carrying cash Needed for hotel reservations, car rentals, and shopping online Take advantage of “float” time/grace period Rebates, airline miles, cash-back rewards, or other “perks” Credit indicates financial stability 5- Disadvantages of Consumer Credit Temptation to overspend Can create long-term financial problems and slow progress toward financial goals Potential loss of merchandise due to late or non-payment Ties up future income Credit costs money - more costly than paying with cash 5- Objective 2 Assess the Types & Sources of Consumer Credit Two Basic Types of Consumer Credit Closed-End Credit One-time loans for a specific purpose paid back in a specified period of time Open-End Credit Use as needed until line of credit max reached . | 5A Consumer Credit #1 Credit – An arrangement to receive cash, goods, or services now and pay for them in the future. Types of credit ??? Objective 1 Analyze Advantages and Disadvantages of Using Consumer Credit Credit Based on trust in people’s ability and willingness to pay bills when due Consumer Credit Use of credit by individuals for personal needs, except a home mortgage Dates back to colonial times; exploded after invention of cars (installment loans; traveling) A major force in our economy 5- Uses and Misuses of Credit Before you use credit for a major purchase, ask: Do I have the cash for the down payment? Do I want to use my savings for this purchase? Does the purchase fit my budget? Could I use the credit I’ll need in some better way? Can I postpone this purchase? What are the opportunity costs of postponing this purchase? What are the dollar and psychological costs of using credit for this purchase? 5- Advantages of Credit Current use of goods and services Permits