Chapter 5

Open-end credit

A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment.

Interest

A periodic charge for the use of credit.

Bank line of credit

flexible loan from a financial institution that consists of a defined amount of money that you can access as needed

The cost of credit

the total amount you will pay less the amount of the original mortgage value

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Simple interest

Interest computed on principal only and without compounding.

Closed-end credit

One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts.

Fair Credit Billing Act

Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.

Line of credit

The dollar amount, which may or may not be borrowed, that a lender makes available to a borrower.

Annual Percentage Rate (APR)

The percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparisons with other sources of credit..

Finance charge

The total dollar amount paid to use credit.

Consumer credit

The use of credit for personal needs (except a home mortgage).

Debt-payments-to-income ratio

all your monthly debt payments divided by your gross monthly income

Consumer Credit Counseling Services

Credit counseling organizations can advise you on your money and debts, help you with a budget, develop debt management plans, and offer money management workshops.

Simple interest declining balance method

calculates interest at periodic intervals on the amount of the principal not yet repaid.

Five C's of Credit

character, capacity, capital, collateral, and conditions

Debt-to-equity ratio

shows how much debt a company has compared to its assets