Forms of consumer borrowing
 Loans: From a bank, a lending institution,
personal (Family, Friends)
 Credit Cards: Typically high interest cards
used to make purchases
Secured Loan
 A loan backed by something of value pledged
to insure payment
 If you own your house this can be used as
assurance that you will repay the loan
 The property pledged to back a loan is
called Collateral
Secured Loans
 A secured loan is safe for the lender because
if they do not get paid back, they get the
asset that has been pledged
 Most Secured Loans are installment loans
 Repaid in a certain amount of payments with a
certain amount of interest
 i.e.: 60 months at 8%
Unsecured Loans
 Not backed by any collateral
 Typically based on credit history
 Generally has a higher interest rate because
of the risk
 Most Credit Cards are considered unsecured
for this reason
Banking Institutions as
sources of loans
 Most common lending institutions are:
Banks, Savings and Loans Associations, and
Credit Unions
 Savings and Loans Associations typically give
money for real estate, however, they often
give personal loans as well
Cont…
 Not all banks charge the same interest rates
 Who would typically have the lowest rate?
Many banks offers lower rates to new customers to
“draw” them in
Other Sources of Consumer
Loans
 Finance Co: Lend to people with poor or no




credit history, higher rates
Life Insurance Co: Users borrow against the
value of their life insurance policy, lower rates
Credit Card Cash Advances: Can be used to
get cash, Very High Interest Rates
Pawn Brokers: Pawn an asset for cash, High
rates
Rent-to-Own: Can get rent an item until you
own it, Highest Interest Rates
Checkpoint
 What is the difference between a Secured
and Unsecured loan?
 Why would you choose one over another?
 What is the best source of credit?
Credit Cards
 Must fill out an application to get one
 Regular Charge Accounts: Must pay off the
balance from month to month
 Revolving Charge Accounts: Allows user to
carry a balance, but charges interest
Sources of Credit Cards
 Most Credit Cards come from:
 VISA
 MasterCard
 Discover
 American Express
Credit Cards
 Consumers can also get a bank issued credit
card
 They can also come from stores, gas stations,
etc.
Credit Card Incentives
 Some organizations will offer incentives to
get you to use their services
 First year without interest
 Low interest rate
 Free Gas
 Frequent Flyer Miles
 Cash back
 Clothing
Activity
 Write a list of all the places you could apply
for a credit in Springfield if you were 18
Credit Card Costs
 Annual Fees: An annual charge a lender has
(could be $15, or $100)
 Interest: Amount that is computed based on
owed monies ( 13% APR)
 Grace Period: Time between billing date and
paying date when no interest is accrued
Credit Card Costs
 Limits and Penalties
 Credit Limit: The maximum amount you are
allowed to charge to your account
 If you go over this amount, you will be penalized,
they’ll typically charge you an overdraft fee ($15$50)
Control Credit Card Costs
 If you can, get a loan instead of high interest
credit card
 DO NOT just make the minimum payments
 When choosing a card, choose the one with
the lowest interest rate
 Do your homework, do not just make hasty
decisions
Activity
 Alex Jones has a credit card with a 12%
interest rate. His balance is 1000 dollars. How
much are his monthly payments for interest
alone?
 Jessica wants a new Mac, she does not have
the money to buy one right now. What are
her options? What are the + & - of each
alternative?
Try These & Math of Money
 Complete the Math of Money on page 336
together.
 Complete Try These and Math of Money on
page 339, on your own. 1-8 & 13