CH. 20
CREDIT/CONSUMER RIGHTS
CREDIT
• Receiving something with the promise of payment
at a later time.
• Principle: Actual cost of the good or service.
• Interest: Amount paid for the use of money.
CHARGE ACCOUNTS
• Buy goods and services at individual stores and pay
for them later.
• Credit limit: Maximum amount a person can buy
with the promise of payment at a later time.
• Three types of accounts are installment, regular,
and revolving.
TYPES OF CHARGE ACCOUNTS
1.
Installment Account
Repaid with equal payments over a certain period of time
Part of the payment goes towards interest & part towards the
principle
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2.
Car loan or mortgage
Regular Account
Billing cycles where a bill is sent at the end
No interest is charged if entire bill is paid
Account can’t be used again until the balance is paid
Interest is charged on the balance not paid
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3.
Furniture Stores usually do this. Pay by 2010, certain amount each
month, but with no interest.
Revolving Account
Billing cycles where a bill is sent at the end
Interest charged on portion not paid
Account can still be used until credit limit is reached
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Example: Credit Cards
CREDIT AND DEBIT CARDS
• Credit cards: Make purchases without cash.
• Used to purchase items and receive loans.
• Charge high interest rates (Avg. 18%) in the
1990’s.
• Lower interest rates if the customer is “reliable”.
• Debit Cards: Transfer funds electronically.
• Popular use in Automated Teller Machines
(ATM’s)
• Now can be tied directly to checking accounts
(check cards)
CREDIT CARDS
Make purchases without having the money
Charge high interest rates – usually @ 18%
Lower interest rates if the customer is reliable
Finance Charges – Cost of credit (interest) expressed in
dollars
• APR – Cost of credit (interest) expressed as a
percentage
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APPLYING FOR CREDIT
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Fill out application
Credit Bureau does a credit check
Creditor may ask for references
Credit checks show your income, debt and ability to pay
debts in the past
CREDIT RATING
• Rating of risk: Excellent, Good, Average or Poor
• Ratings have a number associated with them
• 3 Credit Bureaus: Experian, Transunion &
Equifax
• Gives lenders an idea of reliability when issuing
loans
• Higher Credit Score = less interest you are charged on
a loan = saving money
• Unsecured loans – loan based on reputation
• Secured loans – have collateral to back up the
loan
CREDIT BUREAUS
GOVERNMENT REGULATIONS
• Equal Credit Opportunity Act: a person can’t be
denied credit because of race, religion, national origin,
gender, marital status or age
• Usury Laws: Restrict the amount of interest
companies, not banks, can charge
• In North Carolina, it is 8%. Lend neighbor $100 loan can only
receive $8 from interest
BANKRUPTCY
• Debts are so large they can’t be paid back
• Most of what a debtor owns is sold or given to creditors
• Takes 10 years to reestablish credit
• States can become bankrupt too
FINANCIAL INSTITUTIONS
• Commercial banks: Main functions are accepting
deposits, lending money, and transferring funds.
• Savings and loan: Very much like commercial
banks. Normally smaller banks.
• Savings banks: Original purpose was to help those
overlooked by large banks. Sometimes charge
higher interest rates.
• Credit Unions: Offer high interest on saving and low
interest on loans. Must be a member to use their
services.
• Finance Companies: Charge high interest rates.
Used by those with bad credit history.
CONSUMER RIGHTS
• Consumer – someone who buys a product or service
(YOU!)
• Types of Income
• Disposable Income – money remains after taxes taken out.
• Money to pay for house, car, etc.
• Discretionary Income – money remaining after paying for
necessities
• Either save or spend it
CONSUMER RIGHTS CONT.
• Consumerism – a movement to educate buyers
on purchases and to make sure products are
safe
• Congress laws – Pure Food and Drug Act in 1906
• Private groups – BBB or Better Business Bureau
• Consumer Bill of Rights
• Consumers have…
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Right
Right
Right
Right
Right
to
to
to
to
to
a safe product
be informed
choose
be heard
redress
CONSUMER RESPONSIBILITIES
• Smart Buying Strategies
• Info on products
• Watch out for advertising
• Comparison shopping – find out prices on product
from different stores/internet
• Brand Name vs. Generic
• When product fails
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Report it
Check the warranty
Keep a copy of records
Be calm
• Make Fair complaints
• Ex.