* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Chapter 29
Survey
Document related concepts
Federal takeover of Fannie Mae and Freddie Mac wikipedia , lookup
Debt settlement wikipedia , lookup
Debt collection wikipedia , lookup
Household debt wikipedia , lookup
Global saving glut wikipedia , lookup
Merchant account wikipedia , lookup
Syndicated loan wikipedia , lookup
Credit rating agencies and the subprime crisis wikipedia , lookup
Credit card interest wikipedia , lookup
Interest rate ceiling wikipedia , lookup
First Report on the Public Credit wikipedia , lookup
Securitization wikipedia , lookup
Credit score wikipedia , lookup
Credit rationing wikipedia , lookup
Antigonish Movement wikipedia , lookup
Transcript
CHAPTER 29 THE FUNDAMENTALS OF CREDIT WHAT CREDIT IS • Privilege of using someone else’s money for a period of time • debtor--a person who buys on credit or receives a loan • creditor--a person who sells on credit or makes a loan • depends on trust; creditor believes the debtor will pay back later TYPES OF CREDIT • Loan credit--borrow money for some special purpose • Sales credit--charge a purchase at the time you buy the good or service (charge accounts or credit cards) • Trade credit--used by a business when it receives goods from a wholesaler and pays for it at a specified date; 2/10, n/30 USERS OF CREDIT • Almost all American consumers • Businesses • Government GRANTING OF CREDIT • Credit references (businesses or individuals who granted credit in the past and can verify your credit record) • TO BECOME A DEBTOR YOU MUST PROVE THAT YOU ARE A GOOD CREDIT RISK! THE THREE C’s OF CREDIT 1. Character--refers to honesty and willingness to pay back a debt; how you pay for future bills can be predicted by how you paid for past bills 2. Capacity--refers to the ability to pay a debt when it is due; size of income and current debt will be scrutinized 3. Capital--value of borrower’s possessions; includes money and property BENEFITS OF CREDIT • Convenience--shop without cash; urgent need and not enough cash • Immediate possession--do not have to wait until enough money is saved • Savings--allows one to buy something when it is on sale • Credit rating--develop a favorable credit rating • Useful in emergency--especially when you run out of cash PRECAUTIONS FOR USING CREDIT • Overbuying--buy more than you can afford or buying things you do not need • Careless buying--become lazy consumer and stop comparison shop • Higher prices--stores that sell only for cash can offer lower prices; extending credit is costly • Overuse of credit--too much owed; too much borrowing can lead to bankruptcy QUESTIONS TO ASK • How am I benefiting from the use of credit? • Is this the best buy I can make or should I shop around? • What will be the total cost for the purchase including interest and other charges? • What would I save if I paid cash? • Will the payment be too high considering my income?