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Consumer Credit Chapter 4 Live within your income, even if you have to borrow money to do so. - Josh Billings The use of credit cards: • There are almost a billion MasterCard and Visa credit and debit cards in the United States. • In 2006, Visa cardholders made more than $1,000,000,000,000 in purchases • Today’s consumer owes money, on average, to 13 different lending institutions. • More than half of the United States population has at least 2 credit cards. What do you need to know before using credit? 2 ways to make a purchase: 1) Buy now, pay now 2) Buy now, pay later Anytime you purhcase something that you do not pay for immediately, you are using credit. How is using electricity a form of credit? What other daily activities can be considered credit? Buy now, pay later Any time you purchase something that you do not pay for immediately - Credit People who use credit - Debtors Organizations or people that extend credit to consumers - Creditors What are the advantages and disadvantages of using credit? Why does using credit tempt overspending? Installment Plans • The customer pays for the merchandise over a period of time. • The customer pays part of the selling price at the time of purchase (down payment) • The rest of the selling price is paid in monthly installments. • Customers are also charged interest, also known as a finance charge Heather wants to purchase an electric guitar. The price of the guitar with tax is $2,240. If she can save $90 per month, how long will it take her to save up for the guitar? Is Heather using credit? Divide selling price by monthly savings 2,240 90 24.9 → 25 months Heather speaks to a salesperson who suggests she buy the guitar on an installment plan. It requires a 15% down payment. The remainder, plus an additional finance charge, is paid back on a monthly basis for the next two years. The monthly payment is $88.75. What is the finance charge? Down payment of 15% of selling price How do you find 15% of $2,240 = (0.15) x (2,240) = $336 Price = $2,240; Down payment = $336 • Makes a monthly payment of $88.75 for 2 years – (24 months) x (88.75) = $2,130 • How much did she pay for the guitar? $2,130 + $336 = $2,466 • What was the finance charge? $2,466 - $2,240 = $226 Class Work • Page 178, 2-6 Consumer Credit Chapter 4 He that goes a borrowing goes a sorrowing. Benjamin Franklin What is: • Credit? • Finance Charge? • Creditor? • Debtor? Carpet King is trying to increase sales, and it has instituted an installment plan with no interest, as lon gas the total is paid in full within six months. There is a $20 minimum monthly payment required. If you buy a carpet for $2,134 and make only the minimum payments for five months, how much will you have to pay in the sixth month? → $20 a month for 5 months = $100 → You will need to pay $2,034 in the sixth month 2. Monique buys a $4,700 air conditioning system using an installment plan that requires 15% down. How much is the down payment? → What is 15% of $4,700? = (0.15) x (4,700) = $705 How much will Monique have left to pay? = 4,700 - 705 = $3,995 3. Craig wants to purchase a boat that costs $1,420. He signs an installment agreement requiring a 20% down payment. He currently has $250 saved. Does he have enough? → What is 20% of $1,420? = (0.20) x (1,420) = $284 Does he have enough? Nope 4. Jean bought a $1,980 snow thrower on the installment plan. The agreement included a 10% down payment and 18 monthly payments of $116 each. a) How much is the down payment? = (0.10) x (1,980) = $198 b) What is the total amount of the monthly payments? = ($116) x (18 months) = $2,088 c) How much did Jean pay for the snow thrower? = $198 + $2,088 = $2,286 5. Linda bought a washer and dryer for y dollars. She signed an installment agreement requiring a 15% down payment and monthly payment of x dollars for one year. a) How much is the down payment? = (0.15) (y) = 0.15y b) How many monthly payments? 12 c) What is the total amount of monthly payments? = (12) (x) = 12x c) How much did Linda pay for the washer & dryer? = 0.15y + 12x 5. How much is the finance charge? = Amount paid – price of purchase = 0.15y + 12x - y 6. Zeke bought a $2,300 bobsled on the installment plan. He made a $450 down payment, and he has to make monthly payments of $93.50 for the next two years. How much interest will he pay? Down Payment: $450 Monthly payment amount:(93.50) (24) = $2,244 Total amount paid: $450 + $2,244 = $2,694 Interest: $2,694 - $2,300 = $394 The Whittendale family purchases a new refrigerator on a no-interest-for-one-year plan. The cost is $1,385. There is no down payment. If they make a monthly payment of x dollars until the last month, express their last month’s payment algebraically. Down Payment: $0 Monthly payment amount:(11) (x) = 11x Total amount paid: 11x Last Payment: $1,385 – 11x Class Work • Page 178, 7 - 11