Chapter 9: Credit

Easy-access credit

refers to short-term loans granted regardless of credit history at high interest rates

Closed-end credit

refers to a loan that must be repaid with finance charges by a certain date

Loan shark

refers to someone who loans money at excessive rates of interest

Secured Loan

requires collateral; a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan

Annual Percentage Rate (APR)

the annual cost of credit a lender charges

Repossession

the taking back of collateral when a borrower fails to repay a loan

Grace period

the time between the billing date and the start of interest charges

Payday loan

These are short-term, high interest loans that must usually be repaid on the borrower's next payday

Pawnshops

A pawnshop is a business that gives customers high interest loans with personal property, such as jewelry, held as collateral. Some pawnshops offer payday loans, too.

Title loan

A short-term loan is made using a borrower's car as collateral. The cost of these loans is high and the borrower risks losing his or her car.

Creditor

More specifically, it is an agreement between two parties in which one party, the creditor, supplies money, goods, or services to the other

Rent-to-own

This is an arrangement in which a consumer pays rent for the use of a product and eventually owns it. The advantage is little or no initial payment. The disadvantage to the Consumer is paying much more than the product's purchase price by the time the final payment is made.

Lien

a legal claim on a borrower's property by a creditor who is owed money

Bankruptcy

a legal state in which the courts excuse a debtor from repaying some or all debt

Contract

a legally binding agreement between the borrower and the creditor

Creditworthy

a record of a person's credit history and financial behavior

Cosigner

a responsible person who signs the loan with you

Open-end credit

allows the borrower to use a certain amount of money for an indefinite period of time

Credit

allows you to buy goods or services now and pay for them later

Principal

amount borrowed

Defaults

fails to pay the debt

Garnishment

is a legal procedure requiring a portion of the debtor's pay to be set aside by the person's employer to pay creditors

Collateral

is property that a borrower promises to give up in case of default

Foreclosure

is the forced sale of a property

Credit cards

most often used to buy goods and services on a timepayment plan. You pay for the purchase later, plus interest