Personal Finance 3

Capacity

whether or not you can repay the loan. The creditor may ask questions about income and expenses.

Credit History

whether or not you have used credit responsibly in the past by probably obtaining a copy of your credit report from a credit bureau.

Ways To Determine Whether You Can Afford A Loan

1) add up all your basic monthly expenses and then subtract the total from your take-home pay. If it is not enough for a monthly loan payment and still have a little left over, you cannot afford the loan. 2) consider what you might give up to make the monthly loan payment. 3) Use debt payments-to-income ratio formula to decide whether you can safely take on the responsibility of credit.

The 5 C's Of Credit

The 5 c's of credit- for determining who will receive credit. character- creditors want to know what kind of person to whom they will be lending. They want to know that you are trustworthy and reliable, personal or professional references, trouble with the law? capacity- whether or not you can repay the loan. The creditor may ask questions about income and expenses. capital- amount of your assets that exceed your liabilities, or the debts that you owe. Lenders want to make sure you have enough capital to repay your loan. collateral-a form of security to help guarantee that the creditor will be repaid. Savings or property that you already have to offer as collateral to secure the loan. If you fail to repay loan, the creditor may take whatever you pledged as collateral. credit history- Whether or not you have used credit responsibly in the past by probably obtaining a copy of your credit report from a credit bureau.

Capital

amount of your assets that exceed your liabilities, or the debts that you owe. Lenders want to make sure you have enough * to repay your loan.

Credit

an arrangement to receive cash, goods, or services now and pay for them later.

Creditor

an entity that lends money (financial institution, merchant, or individual).

Collateral

a form of security to help guarantee that the creditor will be repaid. Savings or property that you already have to offer as * to secure the loan. If you fail to repay loan, the creditor may take whatever you pledged as *.

Collateral

a form of security to help guarantee that the creditor will be repaid. if you lost your source of income, you could repay your loan with the *, such as savings, or by selling some of your property (assets). If not paid back, lender has the legal right ot take whatever you pledged as *.

Cosigning

a loan mean that you agree to be responsible for the loan payments if the other person fails to make them. When you cosign, you are taking a chance that a professional lender will not take. The lender would not require a cosigner if the borrower were considered a good risk.

Credit Rating

a measure of a person's ability and willingness to make credit payments on time. Factors: income, current debt, information about character, and how debts have been repaid in the past.

Chapter 7 Bankruptcy

all debts are forgiven and a majority of assets are sold and divided among those owed.

Fair Credit Reporting Act

can sue any credit bureau or creditor that violates the rules regarding access to your credit records or fails to correct errors in your credit file. Entitled to actual damages plus any punitive damages the court allows if the violation is proven to have been intentional.

Truth in Lending and Consumer Leasing Act

creditor fails to disclose information required, or gives inaccurate information, you can sue for any money loss you suffer.

Fair Credit Opportunity Act

creditor that fails to follow the rules that apply to correcting any billing errors will automatically give up the amount owed on the item in question and any finance charges on it.

Character

creditors want to know what kind of person to whom they will be lending. They want to know that you are trustworthy and reliable, personal or professional references, trouble with the law?

Close-end Credit

is a one-time loan that you will pay back over a specified period of time in payments of equal amounts.

Grace Period

is a time period during which no finance charges will be added to your account. Most credit card companies offer this.

Open-end Credit

is credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services.

Annual Percentage Rate (APR)

is the cost of credit on a yearly basis, expressed as a percentage. Ex. APR of 18 percent means you pay 18dollars per year on each 100 dollars you owe.

Line of Credit

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

Finance Charges

is the total dollar amount you pay to use credit. Generally, if you pay your balance before the due date stated on your monthly bill, you do not have to pay a finance charge. Borrowers who carry balances beyond the grace period pay finance charges.

Consumer Credit

is the use of credit for personal needs. it is also an indicator of consumer spending and demand

Bankruptcy

legal process where if someone is so far in debt that they can follow through bankruptcy court, and basically, all assets are distributed among creditors. If you ring up massive credit card bills you may have to file for bankruptcy.

Warning Signs Of Debt Problems

not being able to pay minimum or can only pay the minimum each month, have to start borrowing money, spending more than receiving, credit card balance due each month increases, start using savings to pay for necessities, have to sell things to pay for bills, cash old savings bonds, max out credit card balance.

Consumer Credit Reporting Act

places burden of proof for accurate credit information on the credit bureau rather than on you. Creditor must prove the disputed information is accurate. If incorrect , you can sue for damages.

Chapter 13 Bankruptcy

plan to try to pay off debts over a long term. The debtor normally keeps all or most of his or her property.

Equal Opportunity Act

sue for discrimination (sex, age, race, ethnicity) if you think you can prove it.

Net Worth

the income you receive (take-home pay, allowance, gifts, and interest). (experts suggest that you spend no more than 20 percent of your net income on debt payments.

Simple Interest

the interest computed only on the principal, the amount that you borrow. Based on the principal, interest rate, and the amount of time for which the principal is borrowed. Calculate: multiply principal by the interest rate and by the amount of time (in years) for which the money is borrowed.

Minimum Monthly Payment

the smallest amount you can pay and remain a borrower in good standing. Lenders encourage you to pay a monthly payment because it will take you longer to pay off the loan (more interest, and need to plan budget better).