CHAPTER 7: Credit cards and consumer loans

card registration service

firm that will notify all companies with which you have debit and credit cards if your cards are lost or stolen

interest rate caps

limits in credit contracts that prohibit how much the interest rate can increase over the life of the loan

cosigner

when a person (the cosigner) accepts the legal obligation to make payment on another person's debt should that person default

transaction fees

whenever a credit card is used for a balance transfer or cash advance such fees are charged to the account

credit receipt

written evidence of any items returned that notes on a credit card statement the specific amount of the transaction, which will be charged back to the credit card company and eventually to the merchant

payday lenders

(illegal in some states) are businesses that grant credit when the honor a personal check but agree not to deposit the check for a week or longer. fees for check cashing are usually 20 percent or more.

sale finance company

a finance company that buys at a discount the installment sales and contracts of merchants or that directly finances retail sales

sales finance company

a finance company that buys at a discount the installment sales contracts of merchants or that directly finances retail sales

student loan

a form of unsecured credit that is designed to help students pay for university tuition and books, and sometimes their living expenses

lien

a legal right to keep possession of property belonging to another person until a debt owed by that person is discharged; usually recorded in a county courthouse

unsecured loan

a loan issued and supported only by the borrowers creditworthiness rather than by a type of collateral, because it is obtained without the use of property as collateral for the loan

variable-rate loan

a loan where an interest rate on a loan fluctuates over time because it is tied to an underlying benchmark interest rate that changes periodically

secured loans

a loan where the borrower has pledged some asset as collateral to guarantee the loan

fixed- rate loan

a loan where the contract calls for the interest rate on a loan to remain fixed either for the entire term of the loan

declining balance method

a method of calculating the annual percentage rate (APR) for installment loans where the interest assessed during each payment period (usually each month) is based on the current outstanding balance of the installment loan

add on interest method

a method of calculating the annual percentage rate for installment loans where interest is calculated by applying an interest rate to the amount borrowed times the number of years I=PRT

n-ratio method

a method of estimating the annual percentage rate for installment loans where it is an add on loan

credit statement (billing statement)

a periodic report that credit card companies issue to credit card holders showing their recent transactions, balance due and other key information

installment loan

a system of credit that is repaid by the borrower in regular installments, such as equal monthly payments that include interest and a portion of principal

open-end credit (revolving credit)

an account under which you are allowed to make repeated purchases or obtain loans and you may pay the balance in full or you may pay in installments

prepayment penalty

an additional fee imposed by many loan agreements where a borrower pays off a loan early, before its scheduled pay-off date

signature loan

an example of unsecured personal loan , higher risk

line of credit

an open-end credit account between a financial institution, usually a bank, and a customer that establishes a maximum loan limit that the bank will permit the person to borrow

closed-end credit

arrangement is where the full amount owed must be paid back by the borrower by a set point in time

travel and entertainment (T&E) cards (corporate cards)

cards issued by non-banks that are often used by business people for food and lodging expenses while traveling

acceleration clause

clause in a credit contract that allow a lender to require a borrower to repay all of an outstanding loan if certain requirements are not met, such as missing one or more payments

prestige cards

credit cards often with a precious metal in the brand name such as, gold, silver, or platinum that require that the user possess superior credit qualifications and offer enhancements such as higher credit limits

bank credit cards

credit cards that are issued by banks or large financial institutions, such as Visa, Mastercard, and discover

Chip and pin technology (EMV)

has reduced identity theft for lost and stolen credit cards because each transaction generates a unique code used in approval making them harder to counterfeit. - more security the the magnetic stripe system - EMV: Europay, mastercard, and visa (3 companies that created the chip standard)

recourse clause

in a loan contract that defines what actions a lender can take to get money from a borrower in the case of default a common such action would allow the lender to attach one's wages to pay off debt

pawnshop

is a business that offers secured loans to people with items of personal property used as collateral that the borrower turns over to the pawnshop

loan contract (or loan agreement)

is a document that evidences a loan. - includes: rules, interest rate and fees, and how a loan is supposed to be repaid

service credit

is a form of open-end credit and is granted to consumers by public utilities, physicians, dentists, and other service providers that do not require full payment when services are rendered

unsecured personal loan

is a line of credit available on an as needed basis. this low interest cash advanced system is accessed by writing special checks

deficiency payments clause

is a loan requirement stating that if one defaults on a secured loan, not only can the lender repossess whatever is secured, but if the sale of that asset does not cover what is owed, the borrower can also be billed for the difference

secured credit card (collateralized credit card)

is a type of credit card that requires a fee to open, and it is backed by a savings account used as collateral on the credit available with the card

home equity credit line

is a type of loan in which the borrower uses the equity of his or her home as collateral

single payment loan

is one that is paid back in a lump sum at a later date

teaser rate (introductory rate)

is the annual percentage rate charged by the credit card issuer during an initial period - federal law requires teaser rates must stay in effect for at least 6 months after the account is opened

closed-end credit

is where the full amount owed must be paid back by the borrower by a set point in time

overdraft protection

kicks in when a customer writes a check for more than the amount in their account.

dunning letters

notices that make insistent demands for repayment

cash advances

obtained by credit card customers from an ATM or over the counter at a bank or other financial agency, up to a certain limit

rent-to-own program

offered through a rent to own store provides a mechanism for buying an item with little or no down payment by renting it for a period of time, after which it is owned

rewards credit card

one that pays the cardholder cash back or airlines miles for future use

retail credit cards are also called

proprietary credit cards

affinity cards

standard bank cards but with the logo of a sponsoring organization imprinted on the face of the card, meaning that the issuing financial institution donates a small percentage of the amounts charged to the sponsoring organization

minimum payment

the amount due monthly on a credit card statement that is no smaller than the amount required by the creditor

minimum payment warning box

the box on credit card statements must show how long it would take to pay off the card's balance by making only the minimum payments, and how much you'd need to pay each month to clear the balance in 36 months

finance charge

the cost of credit or the cost of borrowing , it is interest accrued on, and fees charged for some forms of credit

transaction date

the date on which a credit card holder makes a purchase or receives a credit

prime rate

the interest rate banks charge their most credit worthy customers, an it is sometimes used as a benchmark for other variable-rate loans

statement date (billing date or closing date)

the last day of the month for which any transactions are reported on a credit card statement

chargeback

the law provides that customers may dispute charges to their credit card when goods or services are not delivered within the specific time frame, goods received are damaged, or the purchase was not authorized by the credit card holder

credit limit

the maximum amount your credit issuer established for you to borrow on a credit card or line of credit

posting date

the month, day, and year when a credit card issuer processes a credit card transaction and adds it to the cardholder's account balance

periodic interest rate

the monthly rate applied to the outstanding balance of a loan

rule of 78s (sum of digits)

the most widely used method of calculating a prepayment penalty where the lender allocates the interest charge on a loan across its payment periods using numerical values to the sum of all the digits of the periods

payment due date

the specific day by which the credit card company should receive payment from the cardholder

billing cycle

the time period between when credit statements are sent to borrowers, which is usually about one month

liability for lost or stolen cards

the truth in lending act limits a cardholder's credit card liability for lost or stolen credit cards. under law you have to notify credit card issuer within two days of a loss or a theft

penalty rate (default rate)

the very high interest rate charged by the credit card issuer when a borrower violates the card's terms and conditions

retail sellers and businesses

these include department stores, clothing stores, oil companies, and car rental agencies that issue plastic cards that only may be used as open-end credit at one of their locations

promissory note

this is a financial instrument in which the borrower promises in writing to pay a determinate sum of money to the lender, at either at a fixed or determinable future time or on demand of the payee, under specific terms

collateral

this is something pledged as security for repayment of a loan, to be forfeited in the event of a default

default

this is the failure of a borrower to make a scheduled interest or principal payment, and it is something all borrowers want to avoid

grace period

this is the period of time a creditor, such as a credit card company , gives you to pay your new charges without having to pay interest on the new balance

average daily balance

this is the sum of the outstanding balances owed on a credit card each day during the billing period divided by the number of days in the period