CSM 204 Exam 2
installment cash credit
a direct loan of money for personal purposes, home improvements, or vacation expenses. you make no down payment and makes payments in specified amounts over a set period.
open-end credit
a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment. using a credit card issued by a department store, using a bank credit card to make purchases. usually you have the option to pay the bill in full within 30 days without interest charges or to make set monthly installments based on the account balance plus interest.
home equity loan
a loan based on the current market value of a home less the amount still owed on the mortgage
installment sales credit
a loan that allows you to receive merchandise usually high-priced items such as large appliances or furniture.
single lump-sum credit
a loan that must be repaid in total on a specified day, usually within 30 to 90 days. generally but not always used to purchase a single item.
add-on interest method
a method of computing interest in which interest is calculated on the full amount of the original principal
revolving check credit
a prearranged loan from a bank for a specified amount; also called a bank line of credit
credit bureau
a reporting agency that assembles credit and other information about consumers
Credit
an arrangement to receive cash, goods, or services now and pay for them in the future.
Types of credit
closed-end credit and open-end credit
debit card
electronically subtracts the amount of a purchase from the buyers account at the moment the purchase is made
simple interest
interest computed on principal only and without compounding
Importance of consumer credit in our society
no direct finance charges were imposed; instead, the cost of credit was added to the price of goods. The aging of the baby boom generation has added to the growth of consumer credit. baby boom represents 30% of the population and 60% of outstanding debt.
closed-end credit
one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts. payment plans usually involve a written agreement for each credit purchase. A down payment or trade-in may be required with the balance to be repaid in equal weekly or monthly payments over a period of time. The most common are installment sales credit, installment cash credit, and single lump-sum credit.
credit accountability responsibility and disclosure act
places new restrictions on credit card lending and eliminates certain fees
consumer credit reporting reform act
places the burden of proof for accurate credit information on the credit reporting agency
Fair credit billing act (FCBA)
sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.
Uses and misuses of credit
shopaholics and young adults are most vulnerable to misusing credit. college students are the prime target for credit card issuers. Using credit increases the amount of money a person can spend to purchase goods and services now. The trade-off is that it decreases the amount of money that will be available to spend in the future. Many people expect their incomes to increase and therefor expect to be able to make payments on past credit purchases and still make new purchases.
line of credit
the dollar amount, which may or may not be borrowed, that a lender makes available to the borrower
finance charge
the total dollar amount paid to use credit
fair credit reporting act
regulates the use of credit reports requires the deletion of obsolete information and gives consumers access to their files and the right to have erroneous data corrected
incidental credit
credit arrangement that has no extra costs and no specific repayment plan
declining balance method
a method of computing interest when more than one payment is made on a simple interest loan
interest
a periodic charge for the use of credit
revolving line of credit
an arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5 to 10 years.
equal credit opportunity act (ECOA)
bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors
Advantages and disadvantages of credit
consumer credit enables people to enjoy goods and services now and pay for them through payment plans based on future income. credit cards permit the purchase of goods even when funds are low. Customers with previously approved credit may receive other extras, such as advance sales and the right to order by phone or to buy on approval. you can pay for several purchase with one monthly payment. it is safer to use when traveling instead of lots of cash. credit cards are needed to make a hotel reservation, rent a car, and shop by phone. It is also used for identification when cashing checks to access a record of your expenses. It offers "float" which is the time lag between when you make the purchase and when the lender deducts the balance from your checking when the payment is due. Credit indicates stability.
annual percentage rate (APR)
the percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit.
Consumer Credit
the use of credit for personal needs (except a home mortgage)
