Chapter 16 Facts and Ideas

Chapter 16 Facts and Ideas
When credit first began in this country, did loans have high interest rates? Yes
How has credit affected the American economy? It is used everywhere.
How does collateral help assure repayment of a loan? If you don’t pay back the loan, the
creditor keeps the collateral.
4. List several advantages of using credit. Emergency finds, pay at the end of the month, no
collateral, money is available when needed, keeps track of purchases.
5. List several disadvantages to using credit. Debt, and interest rates if you don’t pay back the loan,
and it’s often misused.
6. What are two kinds of open-ended credit?
30-day credit agreement, a consumer promises to pay the full balance owed each month.
Revolving credit agreement, a consumer has the option each month of paying in full or making
payments at least as high as the stated minimum.
How is open-ended credit different from installment credit?
Installment credit must be paid back in full while open ended allows for partial payments.
Identify common credit card terms and explain how each affects borrowing costs.
Credit: amount of financial trust given to borrower by a creditor.
Interest: payment for the use of another’s money. Different lenders use different ways to calculate
Finance Charge: the cost for using credit. The total cost in dollars and cents.
Annual fee: once a year fee charged in addition to interest charges on purchases.
Annual Percentage Rate (APR): total amount it costs yearly to use credit.
Grace period: The time allowed in which purchases can be paid off with no charges
Why does the law require lenders to include all loan costs in the APR?
So consumers aren’t taken advantage of.
10. List seven major sources of credit for consumers.
Retail stores, credit card companies, banks and credit unions, finance companies, pawnbrokers, private
lenders and miscellaneous lenders.
11. Give three examples of service credit.
Telephone, utilities, water, cable, and electric bills.
12. Why do credit unions offer lower interest rates on loan than commercial banks do?
Credit unions are nonprofit and are organized to help the members.
13. How are consumer finance companies different from sales finance companies?
Sales finance companies are organized through authorized representatives while consumer finance
companies do not.
14. Why do finance companies charge high interest rates on their loans?
Because they are taking in high risk people.
15. Explain how pawnbrokers work.
Collateral based loans.