SOURCES OF CREDIT
Independent Living
December 14, 2015
Sources of Credit:
■ The tree types of credit comes from many different credit sources
■ Sources include:
– Credit Card Companies
– Retail Stores
– Banks/Credit Unions
– Finance Companies
– Pawnbrokers
– Private Lenders
Source No. 1: Credit Card Companies:
■ Direct offers come from independent companies
– Capital One
– America Express
■ Credit Card companies offer two different types of cards
– All-purpose cards
– Affinity cards
All-purpose cards
■ Accepted nationwide, and even in some international countries
■ Accepted as payment for ALMOST any purchase
– Clothes in department stores
– Meals at restaurants
■ Comes with an automatic line of credit up to a specific limit
– Limit set by card issuer
■ Depending on card- possibility of cash advance
Affinity cards
■ Credit cards offered by specific organizations
– Professional associations
– College alumni associations
■ Fully issues by credit card companies, sponsored by business with
their name and logo on card
– Organization co-sponsors cards and will receive a certain
percentage of the sales or profits generated by the card
■ Rates and fees range vary widely, and can by multiple time more
expensive then any other option
SOURCES OF CREDIT
Independent Living
December 15, 2015
Review:
■ How much can an annual fee cost you? Can it be paid over time or
does it have to be paid in one month?
■ Are there any incentives with annual fees?
■ How much can a transaction fee cost you?
■ What does the Credit Card Act of 2009 state in regards to penalty
fees?
■ What are the two different ways to calculate finance charges?
■ What is the first source of credit? What type of cards are provided?
Source No. 2: Retail Stores
■ What do retail stores do?
■ Examples: Macy’s, Gap, Wal*Mart
■ Most cards offered by retail stores are only accepted at the specific
stores
■ Incentives provided to customers include discounts, advanced/prior
notice of sales, and other privileges
Source No. 3: Finance Companies
■ Mostly used by people who are turned down by their banks or
credit unions
■ Defined as:
– An organization that makes high0risk consumer loans
■ Second to banks in volume of credit extended
– Growth is partially the result of efforts to eliminate loan sharks
■ High-risk loans usually come with extremely high interest rates
– All depends on if the state has usury law
Source No. 3: Finance Companies –
Usury Law
■ Law that sets a maximum interest rate that may be charged for
consumer loans
– In states where usury law exists, finance companies always
charge maximum rates
– In state where usury law doesn’t exist, finance companies only
charge as much as customer is willing to pay
– When emergency arises, people get charged higher rates
Source No. 3: Finance Companies –
Types
■ Consumer finance company
– Makes most of its loans to consumers who are buying durable
goods
■ Sales finance company
– Makes loans to consumers through authorized representatives, such
as car dealerships
Source No. 4 Pawnbrokers
■ Legal businesses that makes high-interest loans based on the
value of personal possessions pledged as collateral
■ Customer brings possession to be appraised, pawnbroker
extends credit based on total value of possession
– Loan amount extended is considerably less then appraised value of
the possession (usually 10-25%)
Source No. 5: Banks and Credit Unions
■ Commercial Banks:
– Main source of closed-end
loans and lines of credit
offered to individuals and/or
companies
■ loans are made only for
specific purposes
– home, car, vacation
– interest tends to be lower
than on credit cards
– collateral is almost always
used as security
■ Credit Unions:
– Loans made specifically to
members
– Interest rates are
sometimes lower than most
other places
■ Credit unions are nonprofits and are
organized to benefit
members
– Credit unions may be more
willing to make loans to
members because they
have a steak in the
company