Chapter 5: Consumer Credit

closed-ended credit

one-time loans that the borrower pays back in a specific period of time and in payments of equal amounts

APR

2nl/p(N+1) n=number of yearly payments l=total dollar cost for credit p=principal N=number of payments left

bankruptcy

a legal process in which some or all of assets are distributed among creditors because debtor is unable to pay his or her debts

open-ended credit

a line of credit (with a max) with which loans are made on a continuous basis and the borrower is billed periodically for partial payment

interest

a periodic charge for the use of credit

revolving check credit

a prearranged loan from a bank for a specified amount; also a bank line of credit

collateral

a valuable asset that is pledged to ensure loan payments

credit

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

Travel and entertainment cards

balance is due in full each month, American Express, you don't pay for goods or services at time of purchase

home equity loan

considered a second mortgage, attached to house (asset), great interest rates, only should be used for major purposes

debt to equity ratio

dividing total liabilities by net worth

debit cards

electronically subtracts money from bank account

consumer credit counseling services (CCCS)

help with education about credit, spending plan, debt counseling

simple interest

interest computed on principal only without compounding

bank line of credit

like a credit card but with checks, better interest rate

chapter 7 bankruptcy

many but not all debts are forgiven taxes, student loans, debts from courts remain

debt payments to income ratio

monthly debt payments (non mortgage)/net monthly income

APR (annual percentage yield)

the percentage cost of credit on a yearly basis. 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 mortgage)

stored value/ gift cards

prepaid, provides immediate money

chapter 13 bankruptcy

renegotiation of debts, debtor proposes a plan to eliminate debts over time, plan may last up to 5 years

cosigning a loan

taking responsibility for someone else's loan if they default

mobile commerce

the ability to purchase using a mobile device

capital

the borrower's assets or net worth

capacity

the borrower's financial ability to meet credit obligations

character

the borrowers attitude toward his or her credit obligations

line of credit

the dollar amount which may or may not be borrowed that a lender makes available to a borrower

conditions

the general economic conditions that can affect a borrower's ability to repay a loan