Personal finance unit 2 test

Consumer Credit

the use of credit for personal needs (except a home mortgage) by individuals and families, in contrast to credit used for business purposes

Deposit Ticket

used for adding funds to your checking account

closed-end credit

you pay back one-time loans in a specified period of time and in payments of equal amounts

opportunity cost

the most desirable alternative given up as the result of a decision

U.S. Savings Bond

Low-risk savings program guaranteed by the federal government and that may be used to achieve financial goals.

Usage for credit cards

1) Delay the payment for a purchase 2) build a credit history with wise buying 3) buy online or for major purchases 4) earn more generous reward points for spending

Usage for debit card

1) Limit your spending to available money 2) avoid bills that will be paid in the future 3) avoid interest payment or an annual fee 4) obtain better protection if you process a transaction as a credit card

What are the 3 types of credit insurance

1) credit life 2) credit accidental and health 3) credit property

What are the buying influences

1) economic factors 2) social factors 3) personal factors

Choosing financial plan

1) identify your most important features for a financial institution, related to: services, fees, earnings, convenience, online, mobile 2) rank the top feature based on importance and your life situation: college student, young family, older consumer 3) prepare a list of local, national, and online banks and credit unions (include the name, address, phone, website, services offered 4) conduct online and in-person research 5) based on the information collected

Common mistakes when managing current cash flow needs include

1) overspending as a result of a impulse buying and using credit 2) having insufficient liquid assets to pay current bills 3) using savings or borrowing to pay for current living expenses 4) failing to put unneeded funds in an interest-earning savings account or investment plan program

What are the 2 situations on why you should avoid credit

1) you do not need or really want a product that will require financing 2) if you can afford to pay by cash do it

Consumer credit counseling service (CCCS)

A local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems.

Mediation

A method of settling disputes outside of court by using the services of a neutral third party, called a mediator. The mediator acts as a communicating agent between the parties and suggests ways in which the parties can resolve their dispute.

Co-signer

A person who has to pay off the other person's debt if they don't pay it off

certified check

A personal check with guaranteed payment

money order

A purchased certificate from financial institution, post offices, and stores

Certified checks, cashier's check, and money orders

Allows you to make a payment that the recipient knows is valid

Liquidity

Allows you to withdraw your money or short notice without a loss of principal or fees

Truth in Lending Act

An act which requires lenders to inform borrowers of all direct, indirect and true costs of credit.

Credit

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

collateral

An asset that you pledge to a financial institution to obtain a loan

overdraft protection

An automatic loan made to checking account customers for checks written and payments in excess of the available balance. Usually around $50 to $100 extra charge

share draft account

An interest-earning checking account at a credit union

capacity

Being able to make loan payments on time

What is not a good reason to pay on credit

Borrow for living expenses or finance a more expensive car than you can afford

character

Borrower's attitude toward credit obligations

Time deposits (share certificates)

Can be beneficial and safe saving alternatives

borrowers

Carry balance beyond the grace period and pay finance charges

What factors influence financial services

Changing interest rates, rising consumer prices, and other economic factors

what are the 5 Cs

Character, Capacity, Capital, Collateral, Conditions

Cashier's Check

Check of a financial institution you get by paying the face amount plus a fee

Share drafts

Checks written by credit union members

credit bureau ( consumer reporting agencies (CRAs))

Collect credit and other information about consumers

What to do if you can't pay your bills on time

Contact your creditors immediately and try to work things out, instead of waiting for your account is turned over to a debt collector

Federal Deposit Insurance Corporation (FDIC)

Coverage prevents a loss of money due to the failure of the insured institution ($250,000 maximum)

Truth in Lending Law

Creditors were required to state the cost of borrowing as a dollar amount so that consumers would know exactly what the credit charges were and thus could compare credit costs and shop for credit

National Credit Union Administration (NCUA)

Deposit insurance for credit unions

What is the advantage of consumer credit

Enables people to enjoy goods and services now and pay for them through payment plans based on future income

How to improve your credit score

Get copies of your credit report-review for accuracy Pay your bills on time Understand how your credit score is determined Learn the legal steps to improve your credit report Beware of credit-repair scams

Capital

How good is your net worth or assets

inflation rate

If inflation rate increase, interest rates to savers also increase and vice versa

Chapter 7 Bankruptcy

Liquidation bankruptcy. use your liquid assets to pay off debt

What may impose a fee when you go below the required minimum balance

Money market accounts

Can a creditor threaten your credit rating while you are resolving a billing dispute

No

What do experts suggest on your debt to income ratio

No more than 20% of your net income (after tax) on consumer credit payments

Investment companies (mutual funds)

Offer bank services

Treasury Department

Offers several programs for buying bonds

Where are most consumer complaints resolved at

Original sales location

Fair Debt Collection Practices Act (FDCPA)

Prohibits certain practices by agencies that collect debts for creditors

Why do many people choose long-term financing

Smaller payments. But really you're paying more because of interest

Disadvantages of credit use

Temptation to overspend

Checking accounts (demand deposits)

The ability to transfer money to others is necessary for daily business activities

Equal Credit Opportunity Act (ECOA)

The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, or marital status.

What are advantages of borrowing from credit unions

They provide free credit life insurance, are generally sympathetic to borrowers with legitimate payment problems, and provide personalized service

line of credit

the maximum amount of money a creditor will allow a credit user to borrow

Convenience users

Those who pay off their balances in full each month and avoid the finance and interest charges

What's an alternative to a credit card

Travel and entertainment card (T&E card)

regular savings account

Usually involve a low or no minimum balance

Money market fund

a combination savings-investment plan in which the investment company uses your money to purchase a variety of short-term financial instruments

installment cash credit

a direct loan of money for personal purposes, home improvements, or vacation expenses. No down payment

class action suit

a legal action on behalf of all the people who have suffered the same alleged injustice

single lump-sum credit

a loan that must be repaid in total on a specified day, usually within 30 to 90 days

rule of 78s (sum-of-the-digits method)

a method of calculating interest that has extra-heavy interest charges in the early months of the loan

Revolving check credit (bank line of credit)

a prearranged loan from a bank for a specified amount

money market account

a savings account that requires a minimum balance and has earnings based on market interest rates

Certificate of Deposit (CD)

a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate

expressed warranty

an oral or written statement by the seller

Deposit Institutions

commercial banks, savings and loan associations, mutual savings banks, credit unions

limited warranty

covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the costs for shipping or repairs

Installment sales credit

loan that allows you to receive merchandise, usually high priced items. Have down payment

open-end credit

loans are made on a continuous basis and you are billed periodically for at least partial payment

Rate of return (yield)

percentage of increase in the value of savings from earned interest

Chapter 13 bankruptcy

reorganization bankruptcy. court gives you a repayment plan.

savings (time deposits)

safe storage of funds for future use

Fair credit billing act (FCBA)

sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments. May also withhold payment on any damaged or shoddy goods or poor services that you have purchased with a credit card as long as you have made a sincere attempt to resolve the problem with the merchant

Arbitration

settling a dispute by agreeing to accept the decision of an impartial outsider

full warranty

states that a defective product can be fixed or replaced during a reasonable amount of time

Conditions

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