Personal Finance Ch. 6

arrangement to receive cash, goods, or services now and pay for them in the future credit
the use of credit for personal needs consumer credit
an entity that lends money creditor
credit as a one-time loan that you will pay back over a specific time in payments of equal time closed-end credit
credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services open-end credit
the maximum amount of money a creditor will allow a credit user to borrow line of credit
a time period during which no finance charges will be added to your account grace period
the total dollar amount you pay to use credit finance charge
the income you receive (take-home pay, allowance, gifts, and interest) net income
the cost of credit on a yearly basis, expressed as a percentage annual percentage rate (APR)
a form of security to help guarantee that the creditor will be repaid collateral
the interest computed only on the principal, the amount that you borrow simple interest
the smallest amount you can pay and remain a borrower in good standing minimum monthly payment
a measure of a person’s ability and willingness to make credit payments on time credit rating
a loan means that you agree to be responsible for the loan payments if the other person fails to make them consigning
the periodic charge for using credit is called interest
the greatest disadvantage of using credit cards is being tempted to overspend
you will probably find the least expensive loan from family members
the usual trade-off of choosing small payments is paying more in interest
no matter how often you make payments, interest is calculated on the full amount of the original principal with the add-on interest method
which of the “five C’s of credit” does your income affect? capacity
which law gives a borrower the right to stop payment? Fair Credit Billing Act
under the Equal Credit Opportunity Act, you may sue a creditor if the creditor discriminates against you
the legal process in which some or all of a debtor’s assets are distributed among creditors because the debtor cannot pay his or hers debts is called bankruptcy
Chapter 7 bankruptcy relieves an individual from debts arising from credit card charges
what seven question should one ask themselves when deciding whether or not to finance a purchase? book…can I afford it?how much is in my savings?what is the cost of credit?
someone signed a contract to pay for something in 6 equal installments… what type of consumer credit is this person using? Installment Closed-End Credit
List the advantages of using credit* lets you enjoy goods and services now and pay for them laterallow you to combine several purchases making one monthly paymentmakes it easier to shop onlineallows you to travel without carrying a lot of cashcreditors can view you as a responsible person
List the disadvantages of using credit* credit costs moneytemptation to buy more than you can affordcould lose some of your income and property if you do not pay credit bills on timedoesn’t increase your total purchasing power
if net income is $800what is the max one should use on debt payments? $160 a month or less
how might someone obtain a low interest rate and make low monthly payments? low interest from a collateral down paymentextend the length of the loan
what five C’s of credit would someone that has paid for two trucks in cash have and which would they not?what questions is a creditor likely to ask them about the other 5 C’s? have: collateralnot: credit historyIncome source? How long have you worked? How much is in your savings?
how might you prevent a thief from stealing personal credit information from your trash? shred everythinggo online; paperless
which law allows a borrower to sue a creditor or credit bureau that verifies incorrect data about his or her credit history? Consumer Credit Reporting Reform Act
what does the Consumer Credit Counseling Service offer? help you understand and analyze your financesit is for anybody
T or F: Bankruptcy should be used as a last resort TRUE
what are some steps one could take to achieve and maintain a good credit rating?* use a credit cardpay bills on timehave money in savingsdon’t move or change jobs a lotborrow $ and pay it back
what steps could one take to increase their chances of obtaining a loan?* build a good credit scoreput up collateralbig down paymentmake a shorter loan periodvariable interest rate
contrast borrowing from a commercial bank and a finance company* commercial banks:costumers with established creditcollaterallarger loan amountsrepayment based on use of loancredit rates vary based on 5 C’slong detailed applicationcould take several days
what do commercial banks and finance companies both do? lend moneyfor profit organizations

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