Economics Chapter 4 Key Terms

collateral

Something of value that a borrower lets the lender claim if a loan is not repaid

principal

amount of money originally borrowed in a loan

interest

amount the borrower must pay for the use of someone else's money

commercial bank

bank whose main functions are to accept deposits, lend money, and transfer funds among banks, individuals, and businesses (ex. Bank of America)

consumer finance company

company that makes loans directly to consumers at high rates of interest

finance company

company that takes over contracts for installment debts from stores and adds a fee for collecting the debt;

annual percentage rate (APR)

cost of credit expressed as a yearly percentage

finance charge

cost of credit expressed monthly in dollars and cents

credit card

credit device that allows a person to make purchases at many kinds of stores, restaurants, and other businesses without paying cash

charge account

credit extended to a consumer allowing the consumer to buy goods or services from a particular company and to pay for them later

savings bank

depository institution originally set up to serve small savers overlooked by commercial banks

credit union

depository institution owned and operated by its members to provide savings accounts and low-interest loans only to its members

savings and loan association (S&L)

depository institution that accepts deposits and lends funds

mortgage

installment debt owed on houses, buildings, or land

credit check

investigation of a person's income, current debts, personal life, and past history of borrowing and repaying debts

usury law

law restricting the amount of interest that can be charged for credit

unsecured loan

loan guaranteed only by a promise to repay it

secured loan

loan that is backed up by collateral

durable goods

manufactured items that have a life span longer than three years

credit bureau

private business that investigates a person to determine the risk involved in lending to that person

credit rating

rating of the risk involved in lending to a specific person or business

credit

receipt of money either directly or indirectly to buy goods and services in the present with the promise to pay for them in the future

bankruptcy

the inability to pay debts based on the income received

installment debt

type of loan repaid with equal payments, or installments, over a specific period of time