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
