CSM 204 EXAM 2

advantages of credit

- "Float Time" and grace period - "Float"- time lag between when you make the purchase and when the lender deducts the balance from your checking account when the payment is due (up to 50 days) - "Grace period"- no finance charges are assessed on current purchases if the balance is paid in full each month within 25 days after billing

reverse mortgages

- loan based on the equality in a home, that provides elderly homeowners with tax free income and is paid back with interest when the home is sold or homeownership dies

costs of renting

- a security deposit is usually required when you sign a lease - money is held by landlord to cover cost of any damages done to the rental unit during the lease period - incur other living expenses besides monthly rent

closing the real estate transaction

- application or origination fee - credit report - title insurance and search fee - attorney's and appraiser's fee - property survey - pest infection - homeowners insurance - escrow for taxes and insurance - prepaid interest - real estate commission

5 C's of credit

- character - capacity - capitol - collateral - conditions

types of credit

- closed ended - open ended

sources of consumer credit

- commercial banks - consumer finance companies - credit unions - life insurance companies - federal savings banks

CARD ACT

- credit card accountability, responsibility, and disclosure act- places new restrictions on credit card lending and eliminates certain fees

advantages in renting

- easier to move - fewer maintenance and repair responsibilities - lower initial costs

reasons for indebteduess

- emotional problems - the use of money to punish or get even - the expectation of instant comfort - keeping up with the joneses - overindulgence of children - misunderstanding or lack or communication - amount of finance charges makes it difficult to repay

disadvantages in renting

- few financial benefits - limited to types of activities they can pursue in their home - legal details

drawbacks of home ownership

- financial uncertainty - limited mobility - higher living costs

improving your credit rating

- get copies of your credit report and verify that the information is correct - pay bills on time - understand how the score is determined - learn the legal steps - beware of credit repair scams

co signing a loan

- guaranteeing someone's debt - you may have to pay - can damage your credit rating

managing your debt

- if you cannot make your payments, contact your creditors immediately and try to work out a payment plan - do not wait until account is overturned to a debt collector

building and maintaining your credit rating

- limit borrowing - pay on time - control the number of inquiries - credit bureaus

open ended credit

- line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment. 1. credit cards 2. lines of credit 3. smart cards 4. stored value cards 5. travel and entertainment cards 6. smart phones 7. home equity loans

disadvantages of leasing a vehicle

- no ownership interest in the vehicle - a need to meet requirements similar to qualifying for credit - possible additional costs incurred for extra mileage, certain repairs, turning the car in early, or even move to another state

correcting credit mistakes

- notify creditor in writing within 60 days - include account number and explanation of error - they must respond within 30 days - 2 billing cycles but no longer than 90 days to make correction - credit rating unaffected while item is in dispute

closed ended credit

- one time loans the borrower pays back in a specified period of time and in payments of equal amounts. 1. Installment loans 2. Single pay loans

straight bankruptcy (ch 7)

- one type of personal bankruptcy in which many debts are forgiven - immediate liquidation plan

advantages of leasing a vehicle

- only a small cash outflow may be required for security deposit, where as buying can require a large down payment - monthly lease payments are usually lower than monthly financing payments - the lease agreement provides detailed records for business proposes - you are usually able to obtain a more expensive vehicle, more often

danger signals or potential debt problems

- paying only the minimum - growing balances - missing late payments - no savings

resolving consumer complaints

- place of purchase - manufacture's headquarters - consumer agency legal action

phases of making a major consumer purchase

- pre shopping activities - evaluating alternatives - determining purchase prise - post purchase activities

selling your home

- preparing your home - deterring the price - selling yourself - using a realtor - owner financing

benefits of home ownership

- pride of ownership - financial benefits - lifestyle flexibility

finding and evaluating a property to purchase

- selecting a location - using a real estate agent - conduct a home inspection or hire an inspector - mortgage company will want an approvial

warranties and service contracts

- service contracts are frequently called extended warranties, but they are not warranties - because of costs and exclusions, some service contracts may not be a wise financial decision

legal options for consumers

- small claims court - class action suits - using an attorney - legal aid society - prepaid legal services

types on bankruptcy

- straight bankruptcy - regular income plan

disadvantages of credit

- temptation to overspend - potential damage - does not increase total purchasing power - credit costs money - minimum payment tempting

the trade offs in credit

- term vs interest costs - lender risk vs interest rate

opportunity costs of housing choices

- the interest earnings lost on the money used for a down payment on a home or the security deposit for an appointment - the time and cost of commuting to work when you live in an area that offers less expensive housing or more living space - the loss of tax advantages and equity growth when you rent a city apartment to be close to work - the time and money you spend when you repair and improve a lower priced home - the time and effort involved when you have a home built to your personal specifications

practical purchasing strategies and impulse buying

- timing purchases - store selection - brand comparison - label info - price comparison - evaluate warranties - service contracts

consumer credit laws

- truth in lending act - equal credit oppourtunity act - fair credit billing act - fair credit reporting act

APR

-(annual percentage rate) percentage cost of credit on a yearly basis -true rate of interest so you can compare rates with other sources of credit

importance of consumer credit in our society

-all economists now recognize consumer credit as a major force in the american economy; any forecast or evaluation of the economy includes consumer spending trends and consumer credit as a sustaining force. -baby boom generation has added to the growth of consumer credit

general rules of credit capacity

-check your budget - compute the ratios -co signing affects your capacity

advantages of credit

-reward programs - cash back - merchandise - accidental death and dismemberment insurance - auto rental insurance - roadside assistance

misuses of credit

-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 therefore expect to be able to make payments on past credit purchases and still make new purchases

consumer credit counseling service

a local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems

regular income plan (ch 13)

a voluntary plan that a debtor with regular income develops and purposes to a bankruptcy court

definition of credit

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

finance charge

is the total dollar amount you pay to use credit

term vs interest costs

longer loans lower payments, but more total interest

lender risk vs interest rate

to reduce the lender's risk and the interest rate: - accept a variable interest rate - provide collateral to secure the loan - make a large down payment up front - have a shorter loan term

good use of credit

using credit to purchase goods and services may allow consumers to be more efficient or more productive or lead more satisfying lives -medical emergency -need of a car -borrowing for a college education

definition of consumer credit

refers to the use of credit for personal needs by individuals and families, in contrast to credit used for business purposes. (home mortgage)