Credit: Helpful or Hurtful

Fact or Fiction
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Q. Using credit can lead to serious problems.
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A. True

Fact or Fiction
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Q. When you charge a purchase with a credit card, you can withhold payment if the product is defective.
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A. True

Fact or Fiction
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Q. A credit card company cannot raise your interest rate as long as you pay all your bills on time for that account.
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A. False – Under universal default provisions, a company can charge a higher interest rate if your credit score goes down for any reason.

Fact or Fiction

Q. Credit reports usually cost $10 to
$20.
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A. False – Credit reports can be obtained free of charge.

Fact or Fiction
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Q. If a thief charges items to your credit card, you will be responsible for all payments.
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A. False – If you report the theft promptly, you will not be charged more than $50.

Fact or Fiction

Q. Debit cards work the same way as credit cards.
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A. False – They look like credit cards, but they do not allow you to buy on credit.

Fact or Fiction

Q. If a loan is unsecured, you do not have to repay it.
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A. False – You are still responsible for repaying the loan.

Advantages of Credit
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Improved standard of living
Convenience
Help in emergencies
Help in record keeping
Forced savings

Disadvantages of Credit
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Costs more if unpaid balance is not paid monthly.
Interest charges and fees.
Increased impulse buying.
Financial problems
Ties up future income.

Short-Term Consumer Credit
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Service Credit
Installment Credit
The most widely used service credit is for utilities such as
Credit Cards
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 electricity, gas,
Plastic money telephone, cable TV,
Credit card rates
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Annual percentage rate water, and garbage collection. The service is provided before you pay
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Revolving account for it.
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Charge cards

Short-Term Consumer Credit
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Service Credit
Installment Credit
Installment credit is a loan repaid with interest in equal amounts over a
Credit Cards

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 set period of time.
Plastic money
Usually a down payment
Credit card rates
Charge cards is required. A finance

Annual percentage rate charge (interest) is added to the amount owed, and
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Revolving account the total divided by the number of weeks or months that payments are made.

Loans
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Secured Loans
Personal Loans
Auto Loans
Student Loans
Home Loans
Home Equity Loans
Consolidation Loans

Sources of loans

Banks
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Obtaining a bank loan is not simple.
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Complete application form
Credit history check
Often have lower interest rates.
Most banks require collateral.
You might need a co-signer.
Banks give preference to their own customers.

Credit Unions
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To borrow from a credit union you must be a member.
A non-profit financial institution
Owned and operated by the members
Might be one company or organization.
Costs are lower

Savings and Loans
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The original purpose was to provide money for home loans.
Regulations are different from state to state.
Now provide loans for education and other personal reasons.
Borrow the amount equal to your deposits.

Consumer Finance
Companies
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Used to be called small loan companies .
Amount able to loan varies from state to state.
Often loan to people who have poor credit history, therefore, the interest rates are higher than other lending institutions. (18% - 40%)

Loans to Avoid

Credit Card Cash Advances
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Tempting because there is no application and prequalifying.
Cash advances have high costs.
Higher interest rates, no grace period, interest charges.
Payments to credit card go to purchases first, not to cash advance.
Interest still builds until all paid off.

Payday Loans
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Small, short-term, high interest loans
Cash advance, check advance, post-dated check loans, or deferred deposit .
Average payday loan of $300 for eight days, 15% interest comes to an annual percentage rate of 459%.
Cash advance loan is even cheaper.

Refund Anticipation Loans
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“INSTANT TAX REFUNDS!”
Borrowing an amount equal to your refund.
A large part of your refund goes to paying off the loan.
They don’t really save you time.

Pawnshops
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The cost of borrowing at a pawnshop can be greater than almost any other source.
The loan will likely be 1/3 the value of the item.
No application, no questions, immediate money.
Often more than 100% interest.

Loan Sharks
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Dangerous business, illegal
Loan sharks do not have licenses.
Paying back is difficult; they usually stop at nothing to get their money.
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Never borrow money from a Loan
Shark.

Checking for the Main Ideas
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How can using credit improve your standard of living?
What does it mean to “secure” a purchase with a credit card?
How can a grace period help you save money on credit card payments?
What is the difference between a secured loan and an unsecured loan?

Don’t think you will save money by borrowing more.
Consumer Credit Guidelines

Don’t impulse buy.
Consumer Credit Guidelines

Pay off high-interest credit card balances.
Consumer Credit Guidelines

Start an emergency fund savings plan
Consumer Credit Guidelines

Avoid joint obligations with people who have questionable spending habits.
Consumer Credit Guidelines

Charge only those items you can reasonably afford with your basic income.
Consumer Credit Guidelines

Create a realistic budget.
Consumer Credit Guidelines

Find alternatives to spending money.
Consumer Credit Guidelines

Realize that the over-spending culprit is YOU!
Consumer Credit Guidelines

Calculate the cost of using credit before you decide to buy.
Consumer Credit Guidelines

Ask yourself: “Can I pay for this credit purchase if I lose my job?”
Consumer Credit Guidelines

Ask: “What will happen if I don’t make my credit payment work?”
Consumer Credit Guidelines

Ask in each case: “All things considered, do the expected benefits from a credit purchase outweigh the cost?”
Consumer Credit Guidelines