Finance Exam 2

A low account balance fee may be incurred for checking accounts when the balance falls below

$500

Manuel borrowed $4,000 to purchase a used car. The total amount that needs to be paid is $4,000 in principal, $400 in interest, and $250 in loan fees. What is the finance charge on Manuel's loan?

$650 (400+250)

Interest charged on loan for 1 month =

(loan interest rate/12 months) x (loan balance)

Credit Score Ranges

-300 to 550: This range is low - usually leads to rejections for new credit. -550 to 620: This range is considered subprime - indicates a high-risk borrower. High interest and fees. Limits amount of credit issued. -620 to 680: This range represents the minimum score to be accepted for most loans. -680 to 740: This range represents individuals with good credit. Terms and conditions of loans will be favorable. -740 to 850: This range is considered excellent. Borrowers have stellar previous payment histories and receive the best borrowing terms.

The Process of Obtaining Federal Financial Aid

-Application • via FAFSA (Free Application for Federal Student Aid) • To complete the FAFSA form, you will generally need to supply: Information from your and your parents' tax return, your assets, liabilities, and net worth, as well as your parents' balance sheet information, personal and family demographics, and a list of the schools that you are considering attending so that your application can be forwarded to them. -Award • From your school (each school has a different financial aid package and may have different resources that it can use to enhance financial aid award packages to prospective students) • Generally, federal financial aid awards come in three different forms: loans (can we use to pay for school and living expenses), work-study (school-based employment that is subsidized by the federal government students generally work on campus), and grants (a cash award paid the school on behalf of the student grant funds in excess of school expenses are paid to the st

Check alternatives

-Approximately 94% of Americans have at least one account with a bank or credit union, but that means 6% of Americans conduct business on a daily basis using only cash or one of these check alternatives. -Check alternatives are rapidly being replaced by electronic payments, which are more secure.

Positive credit report actions

-Borrowed money from a company and used the purchased asset (e.g., car, boat, motorcycle, furniture). -Applied for, been accepted, and used a credit card. -Took out a student loan

Choosing the Best Payment Method

-Debit cards have insurance, fraud protection, and generally low or no fees. -Prepaid cards have limited loss liability (if financial institution goes out of business), unlimited loss liability (for fraud), and generally higher fees. -ACH is generally preferred by employers to pay wages and by lenders to schedule loan payments.

Negative credit report actions

-Declared bankruptcy -Lost a home to foreclosure -Had been sued and lost the court battle. -Incurred court-related judgments, liens, and unpaid financial obligations (e.g., child support, unpaid fines)

Qualifying for a Credit Card

-For many individuals, a credit card is the easiest way to establish or re-establish credit history. -Ironically, many individuals are not able to qualify for a credit card because they lack sufficient credit histories and therefore do not have a credit score. -Some credit card issuers have special student credit cards that are easier to obtain. Otherwise, adding a co-signer or obtaining a secured credit card are options.

how to avoid expensive loans

-Have an emergency fund -Other sources of funds: • Withdraw the funds from their savings, investments, or other financial accounts • Borrow the money from family or friends • Obtain a loan from a bank, credit union, or other mainstream financial institution • Work more hours to increase pay • Sell something of value • Use alternative financial services (payday lenders and pawn shops)

why you do not want to simply make the minimum credit card payment:

-Let's say you have a $1,500 balance on a credit card that charges a 23% interest rate. Let's also assume that the minimum payment on the credit card is calculated as 4% of the outstanding balance or $25, whichever is greater. -If you make the minimum payment every month, it will take more than 6 years to pay off the bill! This means that you'll end up paying the credit card company more than $1,000 in interest in addition to the $1,500 you borrowed. -However, if you decided to pay about $141 per month, you would be able to pay this outstanding balance in 12 months and save more than $800 in interest.

Advantages of a Checking Account:

-Liquidity: Quick and easy way to access cash. -Direct deposit of paychecks: A way for an employer to transfer your earnings directly to your bank or credit union account. -FDIC insurance: Protection of all deposits up to at least $250,000 in case the bank or credit union fails. -Debit cards: Usually comes with a checking account

Elements of a Loan

-Principal: The amount of money you borrow (the loan) that must be repaid. -Interest: The money paid to the lender for the use of their money- determined by the interest rate charged on the loan. -Loan fees: Fees to cover processing or managing the loan.

emergency fund

-money set aside for expenses that have not been budgeted -The best protection against borrowing

How to calculate APR of a loan

1. Calculate the rate charged for the loan 75/500 = 0.15 (15% for 2 weeks!) 2. Divide 365 by the loan term 365/14 days = 26.07 (if this rate were to be charged every 14 days it would be charged ~26 times) 3. Multiply step 1 by step 2 0.15 x 26.07 = 3.91 = 391% (if she can't pay off the loan this year, she'll end up paying almost $2000 instead of the initial $500)

Accessing Your Credit Report

1. Gather the following information: Name Addresses for the past 2 years Social Security number Date of birth Payment information, such as student loan or car loan payment 2. Go to the annualcreditreport.com website. 3. Input your personal information and request your credit report from each of the credit bureaus. 4. Print out your credit report from each of the credit bureaus and keep it in a safe place.

3 elements required when you write a check:

1. The name of the person or company that gets the money (the payee). 2. The date. 3. The amount to be paid. The amount needs to be recorded both in numerical and written form. -It is possible to make a check payable to "Cash" instead of a person or company, but be aware that once you do this, anyone who comes into possession of the check can cash it. -The memo line, while not required, is still helpful for reconciliation and to designate what this payment is for.

Three important numbers along the bottom of a check:

1. bank's identifying routing number: This number is a unique identifier for that bank that helps facilitate check processing 2. your account number at the bank 3. corresponds to the check number

Susan borrowed money from her credit union using her car as collateral. The monthly interest rate on the loan is 0.2%. There were no other fees associated with the loan. What is the APR of her car loan? Assume 12 equal months.

2.4% APR 0.2% x 12 months = 2.4%

-Approximately ___ of the U.S. population are unbanked or underbanked, meaning that they have either no or only a limited relationship with a bank or credit union. So to gain access to loans and other financial services, they must often use services provided by firms operating in the ____

25%; alternative financial service system.

Cashier's check

A check of a bank or other financial institution that can be purchased by paying the amount of the check plus a service fee

Certified check

A personal check issued by a bank that guarantees the amount will be paid; the bank charges a fee for this type of check

Traveler's check

A prepaid check purchased from a credit card company, bank, or credit union that must be signed before it can be cashed

money order

A prepaid check purchased with cash from a bank, credit union, or convenience/grocery store

Secured Credit Card

A type of credit card that is backed by a savings account used as collateral on the credit available with the card. • Provides a way to establish credit without a co-signer. • Requires the borrower to deposit the full amount of the line of credit at the bank as collateral before the credit card is issued.

Rahim purchased a car 6 months ago. When he applied for an auto loan, the lender required that Rahim allow the bank to automatically debit his checking account on the 15th day of each month until the car is paid for in full. This transfer is an example of what type of electronic payment method?

Automated Clearing House transfer.

Reconcilation

Balancing a monthly bank statement with a check register

Mainstream financial service (loan) providers

Banks, credit unions, and other deposit institutions. (these are what you want to use)

Individuals with low credit scores are more likely to be:

Charged higher interest rates on loans and pay higher insurance premiums.

Your sister just graduated from college and she wants to get a car loan. She would like to borrow $10,000 and repay it over 5 years. She has three offers: • Great Bank is offering her a no-fee 1.99% APR loan. • Best Bank is offering her an interest rate of 1.89% with $100 of loan fees (2.29% APR). • The car dealership is also offering your sister a loan with an interest rate of 1.69% and only $125 in loan fees (2.19% APR). What is your advice to your sister?

Compare the loans by reviewing the APR associated with each loan. The first loan has an interest rate and APR that are equal because there are no fees to finance the loan. The next two loans have fees to process the loan, which cause the APR to be higher than the interest rate because the APR incorporates these fees. Thus, even though the interest rate charged by Best Bank and the car dealership are lower than Great Bank's interest rate, Great Bank has the lowest APR when all of the fees are included and therefore is the lowest cost to borrow. Great Bank's total finance charge is $514.03, Best Bank's total finance charge is $592.69, and the car dealership's total finance charge is $565.93.

electronic payments

Debit cards and prepaid cards *Electronic card payments are the dominant method in use today both in total volume and dollar value. *The key difference is that with a check, money is usually transferred from your account to the merchant only after the seller deposits the check. With a debit card, the transaction occurs instantaneously.

Devon purchased an investment property on October 1 last year. He financed 100% of the purchase with a $100,000 20-year loan at 6% APR. He can deduct the interest portion of his loan payments. His monthly loan payments are $716.43. How much interest will he pay throughout his 20-year loan?

Devon will make total payments of $171,943 ($716.43 × 240 months). He can subtract his loan principal from that amount to arrive at his interest paid, in this case, $71,943.

Cryptocurrency (hybrid method)

Digital money, meaning there is no physical coin or bill. Transactions between parties are recorded on a decentralized online ledger called a blockchain

The most widely used credit score was created by ____ and referred to as ___

Fair Isaac Corporation; a FICO® score. -FICO scores can range from a low of 300 to a high of 850. Higher credit score = lower credit risk

Overdraft fees

Fees incurred when a customer withdraws more money from an account than what is available in the account.

Building a Favorable Credit Score

If you are establishing credit, start with one application. -Strategy: • Open a line of credit; for example, apply for and obtain a credit card. • Buy necessary items like groceries and gas. • When you receive your monthly statement, pay off the entire balance due. • Repeat this process each month - keeping the account active. -Try never to miss a payment. If you do miss one, get and stay current as quickly as possible. -Basic rules to optimize your credit score: • Keep revolving debt balances low • Apply the ratio rule: Credit Usage Ratio • Avoid applying for lots of new credit cards at one time • Vary your credit mix

Financial Aid in Practice

If you do not elect another option, federal direct loans are defaulted into the standard plan which spreads out your payments equally for 10 years unless you elect to pay it off early. It's the easiest to understand, but you might pay more in interest than you would otherwise or by electing another option. -Extended repayment plan: If you have more than $30,000 in loans you can apply to repay your loans over 25 years instead of the standard 10. It's a necessity for some borrowers, but it's a long time to be paying off student debt.

Fixed Installment Loans

Lending contracts where the borrower agrees to repay the money through fixed monthly payments that will not change during the life of the loan. • The borrower gets all the money at once and repays over time. • The loan balance always decreases when payments are made until the loan is paid in full. • Common fixed installment loans include auto loans, education loans, and mortgages. -For example, for a car loan, your required payment might be $600 a month, every month, for 3 years. You can generally pay it off early, but the amount due every month is fixed - $600.

-Peer-to-peer payment (P2P) (hybrid method)

Mobile apps such as: Apple Pay, Cash App, Venmo, and Zelle which allow you to transfer money electronically to people in your network

Prepaid cards

Money loaded on a card in advance to be used to make payments in the future. Does not require a bank or checking account

How FICO Scores are Calculated

Payment History - 35% -Lenders look for on-time payments on loans Amount of Credit - 30% -Available credit Length of Credit - 15% -Longer = better New Credit - 10% -Less is more Types of Credit - 10% -Mix of types

Debit Cards

Payment made directly from cardholder's checking account using either a PIN or the cardholder's signature to verify the transaction

Hybrid transaction methods

Peer-to-peer payment (P2P), Cryptocurrency, and Automated Clearing House (ACH)

Let's say that your friend Justin makes $22,500 per year. Although he generally makes enough to cover his living expenses from his paychecks that he receives every 2 weeks, this month he needs an extra $350 to pay all of his bills. What advice would you give Justin if you knew that he has a steady job but just not enough cash coming in this month?

People like Justin often feel trapped into using either a payday or title loan borrowing option because they simply do not know where to turn for a short-term small-dollar loan. He can: • Cash Advances - from credit card • Ask a friend or family member for a loan • Request an advance on his paycheck • Contact the companies he owes money to, explain his situation, and ask for a modification to his billing plans

Loan repayment cost =

Principal + Interest + Fees (aka principal + finance charge)

secured loans vs unsecured loans

Secured: vehicle loans (auto, truck, RV, etc), mortgage loans, deposit advances, car title loans, pawn shop loans Unsecured: lines of credit, credit cards (both of these can be secured when other assets are required as collateral), student loans (tax refunds and other federal government payments may be seized to offset federal student loans that have been sent to collection), payday loans

Trudy initiates a $5,000 2-year fixed-rate installment loan on November 1. Her initial monthly payment is $25 in interest and $196.60 in principal repayment. What will be the ending balance for the year end?

She has a fixed-rate installment loan, so her monthly payments are equal. Her monthly payment is $25 in interest + $196.60 in principal repayment = $221.6. The monthly interest rate is last month's interest paid of $25/$5,000 principal = .005. November ending balance is $5,000 − 196.60 principal repayment = $4,803.40. December interest payment is November ending balance of $4,803.40 × .005 monthly interest rate = $24.02. December principal repayment is the monthly payment of $221.60 − $24.02 interest = $197.58. Hence, December ending balance is November ending balance of $4,803.40 − December principal payment of $197.58 = $4,605.82.

Payday Loan

Short-term loan designed to be repaid within a few weeks or when the borrower receives their next paycheck. -Millions of Americans rely on payday loan companies "just to get them to pay day," but in reality, payday loan cycles can be very difficult to get out of -Ex: Tisha's car broke down, and she needs it fixed asap. It will cost $500 to fix, which she doesn't have, but she knows she will be paid in 2 weeks. She panics and visits a payday loan store who offers to lend her $500 for two weeks for a fee of $75. As collateral, Tisha must write a $575 check. In two weeks, Tisha must return with $575 cash to "buy back" her check. If she does not pay back the loan in 2 weeks, the lender will attempt to cash the check. If it goes through, great, but if not, she will also incur a fee with her bank for insufficient funds. The payday lender then may agree to roll forward the loan, but another $75 will be added, and the cycle continues.

Collateral

Something of value that can be sold in the event that the loan payments are not made by the borrower. For example, a car or a house. Lenders often do this by placing a lien on the collateral, which gives the lender the legal right to repossess and sell the collateral if the borrower does not repay the loan

Variable Installment Loans

Structured so that the loan will be paid off within a certain time period; however, payments may fluctuate during the repayment period due to changes in the interest rate. • If the interest rate changes, then the payments due and interest charged will change each month. • The change in interest charged may increase or decrease the loan payments or length of the loan. • Example, Adjustable Rate Mortgages (ARMs) -Often this base rate will be referred to as "prime" and your interest rate stated something like "prime + 2%," for example

Silva's credit card has an ending balance of $1,200 on October 31. The minimum payment due is $36 on November 30. He made no transactions this month. The APR is 24%. How much interest will he pay in November?

The daily periodic rate is the annual percentage rate (APR) divided by 365 days in the year: (.24/365) = .00067. In this case since no transactions were made, the static outstanding balance can be multiplied by the daily periodic rate: .00067 × $1,200 = .78904/day. This is the interest cost per diem (day). Then multiply the interest cost per diem by the number of days in this billing period: $0.78904 × 30 days = $23.67 total interest cost in this period.

credit score

The information within a credit report is analyzed and then reduced into a number - known as a credit score. -A credit score is merely a tally that summarizes a person's credit risk. -A bad credit risk is someone who has a history of not paying bills on time or not repaying their loans.

Finance Charges

The total amount of fees and interest charged by the lender for a loan

Information shown in a credit report

There is a summary of current accounts, meaning any loans that you are still paying down, as well as all open credit cards, their outstanding balance, credit limit, and on time payment status. *you should never cancel your old credit cards even if you're not using them. The longer the credit card has been open, the better your credit will be. -Next is negative items which should include nothing but may include any bills sent to collections (hospital bills are the most common), foreclosures, bankruptcies, and other oopsies. Negative items can severely impact your ability to get credit so it's important to always pay your bills on time. -Next is your inquiry history which is simply who and when has checked your credit recently. You should recognize all of them because you must sign a release to have a potential lender make an inquiry. -Lastly, there may or may not be an update to a negative item or other reference to a current or closed account in the personal statement section. This may just give a little more context and status update to existing items.

Kingston had $1,250 in his checking account when his debit card was stolen. A thief made $625 in purchases with the card. How much could Kingston have saved by reporting the stolen card within 2 business days rather than 3 business days before reporting the theft?

Waiting more than 2 business days but less than 60 days before reporting the theft results in a $500 liability. $500 - $50 = $450. Waiting more than 60 days results in unlimited liability.

Inquiry

When a lender requests your credit report to determine creditworthiness -The lender uses the report to determine the probability that you will make timely payments in the future. -Every 30 days or so, the lender will report information to the credit bureaus about your outstanding balance and payment timeliness. *Every time you have an inquiry, your credit report is negatively affected so you want to try to keep inquiries to a minimum.

When is a variable or a fixed loan better?

When national interest rates are high, a variable loan might be advantageous in the future if you expect that interest rates will decrease over the loan term. However, when interest rates are low, you are best lock it in at fixed low rate.

List the characteristics of installment loans, and give three examples of installment loans:

With an installment loan, the borrower receives the full amount of the loan upfront in a single lump sum. Usually, the interest rate is fixed, as is the payback period (this is in contrast to credit cards, where the minimum payment from month to month changes based on the unpaid balance owed on the credit card). Loan repayment periods for installment loans generally last from 1 to 5 years. Some examples of installment loans are for: furniture, an automobile, or a mortgage

How Credit Scores are Used and Updated

Your credit score is regularly updated based on your most recent credit report. A change in any of these items will result in an update to your report. 1. Personal information: Name, date of birth, social security number, and address) 2. Summary of accounts: All open credit 3. Inquiries: List of all lenders who have looked at your credit over the past 2 years 4. Negative Items: Summary of missed payments, overdue notices, and any public record information

credit bureau

a company that maintains housing and credit files on consumers. There are three primary national credit bureaus: Equifax, TransUnion, and Experian. Fair Isaac Corporation (FICO), the nation's leading credit-scoring company

credit card

a loan that can be used at the borrower's discretion and convenience and has flexible repayment options. • Generally essential when renting cars, reserving hotel rooms, or booking airline and other travel tickets. • Responsible use of credit cards can also help build your credit score making it easier to qualify for other loans, such as auto loans and mortgages. **credit cards are a type of a line of credit, known as revolving loans or open-end credit -a credit card loan can be paid-off in full every month and then borrowed again in full the very the following month without having to seek lender approval. If you plan to pay it off every month, you may not think the interest rate charged will be a factor for you, but the interest charged on credit cards can range from 12 - 40% so it's important to know what you're getting into.

Automated Clearing House (ACH)

a nationwide network of banks, credit unions, and other depository institutions that send each other credit and debit transfers electronically. • Make up a high percentage of payments made in the United States including payroll, government benefit payments, and auto bill pay.

deposit advance

a short-term loan that is automatically repaid when the next qualifying electronic deposit is made (such as the next paycheck). • The borrower must have a checking account and a history of regular electronic deposits of paychecks, federal benefits, or other deposits • When a loan is needed, the borrower pays the bank approximately $10 for every $100 borrowed (meaning that if you take a deposit advance every month for a year, your APR could be as high as 120%) • The borrower then has 35 days to pay back the loan *These loans compete directly with payday loans, but at a lower cost.

personal loan

a small-dollar debt that can be used to pay bills or make purchases; money borrowed for personal reasons; to be repaid within a specific time frame and with added interest

credit report

a summarized accounting of your credit history -A lender will request your credit report to determine creditworthiness when you apply for credit

Annual Percentage Rate (APR)

a way to simplify comparison shopping for consumers (disclosure is required by the federal government). • A broad measure of the cost of borrowing — includes both the interest rate charged and any required fees for the loan. *For home loans, the APR is higher than the loan's annual interest rate. For credit cards, the APR is typically equal to the effective interest rate charged on outstanding balances and doesn't include costs, such as an annual fee to have the credit card.

credit applications

additional information you submit to your credit report and that contain employment information and addresses.

Direct consolidation loans

allow students to consolidate all of their federal student loans into one easy-to-manage loan.

Peer-to-peer (P2P) lending

allows a borrower and lender to come together via the Internet, such as Lending Club®, Peerform®, and Prosper®. • Allows people 18 years of age or older to enter their personal information into a database • Each service provider creates a "lending score" that is driven by a borrower's credit report • Those who have at least a 650 credit score can then ask lenders (known as investors) for a loan • Loans can range from $1,000 to $50,000 • Interest rates vary but generally do not exceed 36% APR *It works somewhat like taking an Uber, with a marketplace established to help people make loans to each other rather than through a company or a bank. Although the lending sites do charge a loan origination fee, peer-to-peer lending offers a way for many consumers to obtain a lower-cost loan.

Co-Signer

an individual, in addition to the borrower, who will be held responsible for repayment of the debt -If a borrower lacks a credit history and has a lower income, lenders are much more willing to approve the application if there is a co-signer with a strong credit history that guarantees prompt repayment.

Unsecured/signature loans

are not backed by collateral • Considered to be riskier than secured loans and therefore charge a higher interest rate • Example: credit cards, student loans (the lender would not be able to "take back" your education. Most unsecured loans can be eliminated or restructured in bankruptcy, but not student loans) • . The most common penalty for non-payment is compounding interest along with severe penalties to your credit score if a bill is turned over to collections.

Direct PLUS loans

available to graduate and professional students. • Direct PLUS loans are available to parents of undergraduate students • Interest is calculated on the loan balance until they're no longer attending school and payments begin • Students don't need to show financial need to receive these loans • of all the federal direct loans, this one has the highest interest rate.

A credit report is best defined by which of the following statements? a. A score that represents your credit reputation. b. A summary of an individual's credit history. c. A compilation of all public and private records relating to your finances. d. An accounting of legal action taken against you to collect debts.

b. A summary of an individual's credit history.

Secured loans

backed by collateral (that bank can claim) • Property (such as a car or valuable item) that can be taken by the lending institution if the borrower fails to repay the loan • Generally offer the lowest rates and are used most often when purchasing the collateral item. • For example, a mortgage is secured by the home, a car loan is secured by the car.

To link your checking account with online or other electronic payment tools, you'll need to know your

bank routing number and bank account number

Traditional transaction method

cash, coins, and checks

Alternative financial service (loan) providers

check cashers, money order providers, and payday lenders.

Pawn shops and title loan companies base their loan on the value of

collateral *Even credit cards, which can still charge upwards of 30% APR is still a far superior option than a payday or title loan. The use of alternative financial services should ALWAYS be the last option

Direct Subsidized Loans

federal student loans made to undergraduate students who demonstrate a financial need, as evidenced on their FAFSA form • If the student is enrolled in school for more than half-time, interest on these loans is paid by the federal government -These loans are the best value if you have to borrow

current creditors

firms that you have borrowed money from -The information that goes into your credit report comes primarily from current creditors

Credit transfers

include wages, salaries, Social Security benefits, and tax refunds

mainstream lenders

institutions that offer lower rates and rely heavily on a borrower's credit report when deciding whether not to approve a loan -banks, credit unions, auto manufacturing financing, credit card issuers, merchant credit cards

personal line of credit

looks similar to credit cards (there for you when you need it, if you need it); allowing the borrower to maintain a revolving balance month to month. • Usually unsecured (but can also commonly be secured by home equity, for a lower rate) • The bank informs the borrower how much may be borrowed in total • The borrower is given a debit card or a checkbook • The borrower can then access the line of credit as needed • Interest is only paid on the money borrowed

Direct Unsubsidized Loans

made to undergraduate, graduate, and professional students. • Interest is calculated on the loan balance until payments begin—which is usually 6 months after graduation—and continues throughout repayment • The annual amount a student can borrow under both the direct subsidized and direct unsubsidized loans is capped • Students don't need to show a financial need to receive these loans

alternative financial services

may be forced to use if you have very bad credit or no credit at all -The Alternative Financial Services firms are a last choice option for households without good credit. They focus on making loans that are collateralized either with an asset or access to a borrower's bank account, and the rates charged even for short-term loans can be astronomical -check cashers, payday lenders, title loans, pawn shops, seller-financed used car loans

Types of federal student loans

o Direct subsidized loans o Direct unsubsidized loans o Direct PLUS loans o Direct consolidation loans *Private loans are also an option; however, credit checks and income verification are generally required. Only Federal Direct loans are eligible for any federal loan forgiveness programs which can be a major benefit for some borrowers.

Identity theft

occurs when someone else uses your personal information, such as your name and Social Security number, to obtain credit. If you are the victim of identity theft or a credit scam: • Write to each of the credit bureaus directly, telling them that the information is inaccurate. This forces the company to investigate the fraud within 30 days. • Write to the merchant(s) and dispute any items purchased that you did not buy. • If these actions do not work, contact the Federal Trade Commission and your state Attorney General's office. • You can also report the crime to local law enforcement

electronic transactions

quickly becoming the standard *As recently as 1995, the majority of spending transactions in the United States were made with a check. However, the days of pen-and-paper transactions as the primary method of doing business are gone forever.

Fair Credit Reporting Act (FCRA)

requires Equifax, Experian, and TransUnion to provide you with a free copy of your report once every 12 months. • You should request a copy just to make sure that everything in your report is accurate. Credit reports can have errors. • If you find an error on your credit report, you should contact the credit bureau to have the information corrected.

check

simply a written order to a bank to pay a third party (payee)

collateral

something you give the lender that they can sell if you don't repay the loan in a timely manner -Ex: If you pawn a $1,000 diamond ring, you may receive a 3-month $400 loan. At the end of the loan period, you could owe the pawn shop anywhere from $450 to $500 to get back the diamond ring.

The majority of financial aid awards are in the form of

student loans

Installment Loan

the borrower receives the full amount of the loan upfront in a single lump sum, and the borrower then pays back the loan a little at a time, generally via a monthly payment • The interest rate is usually fixed • The payback period is fixed (in contrast to credit cards) • Repayment periods generally from 1 to 5 years *Installment loans is the most common type of consumer loan, but when borrowing money for things like furniture or an automobile, make sure that the loan repayment period is shorter than the expected useful life of the asset.

Using amortization tables

to calculate the interest charged, multiply the outstanding loan balance by the interest rate for the loan for a given time period -For example, on January 1, assume Jose borrows $1,000 with a fixed interest rate on the loan of 9.6% and a loan term of 12 months. Jose will be making monthly payments of $87.73. How much of Jose's February 1 loan payment would be interest charged for January, the first month of the loan? *The amount of principal that Jose will repay depends on the loan term, which is the length of time Jose has to repay the loan. As the loan is repaid, the amount of interest charged each payment decreases; and therefore, the amount of each payment being applied to the loan principal increases, even though his payment stays the same. The amount of interest that Jose will be charged in January is therefore $8.00. This is calculated by taking the outstanding principal ($1,000) times the annual interest rate of 9.6%, divided by 12 months. Jose's total loan payment of $87.73 will include $8.00 of interest and $79.73 will be applied towards the loan principal. This principal payment will reduce the loan balance to $920.27 for the February calculation.

Debit transfers

typically are payments for mortgages, utility bills, and credit card payments

Repayment of Federal Student Loans

typically must begin within 6 months of completing school or when students are at half-time status or less • The 6-month period is referred to as the grace period • There are several different repayment plans that can be designed to fit your needs • One benefit associated with all types of student loans—including federal student loans—is that the interest you pay may be tax-deductible

public legal records

where other information is found for your credit report, such as bankruptcy filings, court ordered liens, or court judgments.

Types of Personal Loans

• Secured loan • Unsecured loan • Installment credit • Line of credit • Deposit advance • Peer-to-peer (P2P) lending

Options to pay for college:

• Work • Scholarships • Family contributions • Savings • Federal student loans