CHAPTER
18
SLIDE 1
CHAPTER
18
Consumer Credit
18-1 Credit Fundamentals
18-2 Cost of Credit
18-3 Credit Application and Documents
18-4 Protection of Credit Rights
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
18-1 Credit
Fundamentals
Goal 1 Identify the types of consumer
credit.
Goal 2 Describe the benefits of using
credit.
Goal 3 Explain some disadvantages of
using credit.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 2
CHAPTER
18
SLIDE 3
KEY TERMS
● credit
● finance charge
● down payment
● installment loan
● promissory note
● collateral
● cosigner
● credit rating
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 4
USING CREDIT
● Credit is the privilege of using someone
else’s money for a period of time
● Two parties
● Debtor
● Creditor
● Trust
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 5
TYPES OF CREDIT
● Trade credit
● Loan credit
● Installments
● Sales credit
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 6
CHARGE ACCOUNTS
● Regular accounts
● Budget accounts
● Revolving accounts
● Credit limit
● Payments
● Finance charge
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 7
CREDIT CARDS
● Bank cards
● Travel and entertainment cards
● Oil company cards
● Retail store cards
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
FEATURES OF INSTALLMENT
CREDIT
18
SLIDE 8
● Signing a sales contract that shows the terms of
the purchase
● Receiving the purchased item at the time of the
sale
● Making a down payment
● Paying a finance charge on the amount owed
● Making regular payments at stated times
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 9
CONSUMER LOANS
● Installment loan
● Single payment loan
● Promissory note
● Collateral
● Secured loan
● Cosigner
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 10
Checkpoint 
● What are the major types of consumer
credit?
● The major types of consumer credit are
loan credit and sales credit.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 11
BENEFITS OF CREDIT
● Convenience
● Immediate possession
● Savings
● Credit rating
● Useful for emergencies
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 12
Checkpoint 
● What are the main advantages of
consumer credit?
● The main advantages of consumer credit
are convenience (shopping without carrying
cash), immediate possession of items
bought on credit, savings (when stores
offer special prices to credit customers), the
chance to build a favorable credit rating,
and for emergencies.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 13
CREDIT CONCERNS
● Overbuying
● Careless buying
● Higher prices
● Overuse of credit
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 14
QUESTIONS TO ASK
● How will you benefit from this use of credit?
● Is this the best buy you can make or should you
shop around?
● What will be the total cost of your purchase,
including the finance charges?
● What would you save if you paid cash?
● Will the payments be too high for your income?
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 15
Checkpoint 
● What are potential drawbacks of buying
on credit?
● Potential drawbacks of buying on credit
include overbuying, careless buying,
paying higher prices, and overuse of credit.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
18-2 Cost of Credit
Goal 1 Calculate interest in consumer
credit situations.
Goal 2 Explain finance charges when using
credit.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 16
CHAPTER
18
SLIDE 17
KEY TERMS
● interest
● annual percentage rate (APR)
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 18
FINDING INTEREST
● Principal, P
● Amount of the loan
● Interest Rate, R
● Percent of interest charged or earned
● Time, T
● Length of time for which interest will be
charged, usually expressed in years or parts
of a year
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 19
SIMPLE INTEREST
Interest  Principal  Rate  Time
I
P
R
T
Interest  Principal  Rate  Time
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
SIMPLE INTEREST
EXAMPLES
I 
P

R
18
SLIDE 20

T
One year
I  $100  .12

1

$12
Two years
I  $100  .12

2

$24
One month
I  $100  .12

1/12

$1
60 days
I  $100  .12

60/360 
$2
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 21
MATURITY DATES
● Maturity date is the date on which a loan must
be repaid.
● Time stated in months
● One-month loan made on January 15 is due on
February 15
● Two-month loan made on January 15 is due on March
15
● Time stated in days
● 90-day loan made on March 4 is due on June 2
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 22
90-DAY LOAN EXAMPLE
● Determine maturity date for a 90-day loan made
on March 4
● Find the number of days
remaining in March
● Add days until you reach
90 days
● Due date is June 2
March
April
May
June
Total
© 2012 Cengage Learning. All Rights Reserved.
27 days (31–4)
30 days
31 days
2 days
90 days
Principles of Business, 8e
CHAPTER
18
SLIDE 23
INSTALLMENT INTEREST
● Decreasing loan payments
● Level loan payments
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 24
AMORTIZATION SCHEDULE
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 25
Checkpoint 
● What three things are necessary to
calculate interest?
● To calculate interest, you must know the
principal (amount of the loan), the interest
rate, and the length of time for which
interest will be charged.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 26
FINANCE CHARGES
● Annual percentage rate (APR)
● Total dollar charges
● Compare credit costs
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 27
Checkpoint 
● What does APR represent?
● APR represents the annual percentage
rate, which is the percentage cost of credit
on a yearly basis.
● This disclosure is required by law.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
18-3 Credit Application
and Documents
Goal 1 Explain the credit application
process.
Goal 2 Describe the activities of a credit
bureau.
Goal 3 Discuss commonly used credit
documents.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 28
CHAPTER
18
SLIDE 29
KEY TERMS
● credit application
● credit bureau
● statement of account
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
CREDIT APPLICATION
PROCESS
18
SLIDE 30
● The three Cs of credit
● Character
● Capacity
● Capital
● Credit applications
● Documenting credit data
● Actions to establish credit
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
Checkpoint 
18
SLIDE 31
● What are the three Cs of credit?
● Character
● Capacity
● Capital
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 32
CREDIT BUREAU
● Gathers information on credit users
● Sells information to businesses offering
credit, such as banks, finance companies,
and retail stores
● Creates a credit report showing debts
owed, how often credit is used, and
whether debts are paid on time
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
MAIN COMPONENETS OF
A CREDIT REPORT
18
SLIDE 33
● Personal information
● Public records
● Adverse accounts
● Accounts in good standing
● Credit history requests
● Personal statement
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 34
Checkpoint 
● What is the main purpose of a credit
bureau?
● The main purpose of a credit bureau is to
gather information on credit users and
report the facts in credit reports that it sells
to businesses that offer credit.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 35
CREDIT DOCUMENTS
● Credit contracts
● Statement of account
● Accuracy of records
● Avoiding fraud
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
SAMPLE CREDIT CARD
STATEMENT
© 2012 Cengage Learning. All Rights Reserved.
18
SLIDE 36
Principles of Business, 8e
CHAPTER
18
SLIDE 37
Checkpoint 
● What are the main items reported on a
statement of account?
● The main items reported are the balance
due, the amounts charged during the
month, the amounts credited for payments
or returned items, the current balance, and
the minimum amount due.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
18-4 Protection of
Credit Rights
Goal 1 Identify credit application
regulations.
Goal 2 Explain credit use regulations.
Goal 3 Discuss credit problems and
available assistance.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 38
CHAPTER
18
SLIDE 39
KEY TERMS
● credit counselor
● bankruptcy
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
CREDIT APPLICATION
REGULATIONS
18
SLIDE 40
● Truth-in-Lending Act of 1968
● Credit Card Act of 2009 (CARD)
● Equal Credit Opportunity Act
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
Checkpoint 
18
SLIDE 41
● How does the Truth-in-Lending Act assist
consumers?
● The Truth-in-Lending Act assists consumers by requiring that
they be fully informed of all of the costs of credit before
signing an agreement.
● Borrowers must be informed of the annual percentage rate
and total finance charge.
● The Act also limits consumers’ liability for unauthorized use
of credit cards to $50 for unauthorized purchases made prior
to notifying the card issuer, and cardholders are not liable for
any purchases made after notifying the credit card company.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 42
CREDIT USE REGULATIONS
● Fair Credit Billing Act
● Fair Credit Reporting Act
● Consumer Credit Reporting Reform Act
● Fair Debt Collection Practices Act
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 43
Checkpoint 
● What is the purpose of the Fair Credit Reporting Act?
● The purpose of the Fair Credit Reporting Act is to give
consumers the right to know what information credit bureaus
are giving to potential creditors, employers, and insurers.
● The Act requires credit bureaus to keep records for both a
husband and wife if both are responsible for the debt so that
each spouse can develop a credit history.
● It also requires credit bureaus to delete information dealing
with a personal bankruptcy that is more than 10 years old and
any other adverse information that is more than 7 years old.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
CREDIT PROBLEMS AND
ASSISTANCE
18
SLIDE 44
● What are the first steps people should take when
they cannot pay their bills?
● Contact creditors and explain the situation
● Make a realistic proposal for making payments
including when and amount
● Keep any promises made
● Make a written copy of the agreement
● Credit counseling
● Bankruptcy
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
18
SLIDE 45
Checkpoint 
● What actions can a person take when facing
credit problems?
● A person can contact creditors and explain the
situation, make a realistic proposal, keep any
promises made, and make a written copy of
agreements.
● A person with credit problems may be able to work
out a debt repayment plan.
● He or she could also contact a credit counselor for
advice.
● Bankruptcy is a final option for extreme debt
situations.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e