Debit and Credit
Download
Report
Transcript Debit and Credit
KEY VOCAB:
Lender
Interest
Loan
APR
Borrower
Debit and Credit
What IS Credit???
• Permission to pay later for goods and services
obtained today
• You can buy something NOW with the promise
to pay it back LATER
• Like most tools, you have to use it correctly;
otherwise, you will spiral down into massive
debt
Basics
• Lender is a person or institution that gives someone
money temporarily for a fee
• The charged to borrowed money is called interest
• Money lent at interest = Loan (recipient is called a
borrower)
• The annual percentage rate (APR): annual cost of
credit expressed as a percentage of the borrowed
amount
• Credit rating = estimate of a borrower’s ability to
repay a loan
• Collateral is property that is considered valuable to
the borrower that can be used as security for a loan;
the lender can seize it if the borrower fails to pay up
Sources
• Retail stores (Target, Sears, Wal-Mart, etc.)
• These cards have preapproved credit lines of
anywhere from $250 to $1000 dollars
• You can use these cards to purchase items in
the store up to the preapproved amount
• Banks, Credit Unions, Savings/Loan
associations, and Finance companies
• Credit Union = like a bank but formed by a
group w/ common interests
Credit Cards
• Most common form of credit today
• Issued by Banks, credit card companies, and
stores
• When applying for one, they check your credit
rating
• Lender decides if what you can afford to pay
back based off of that rating
• Late payments are assigned if the full balance
isn’t paid off each month
Benefits/Drawbacks
• Used wisely, can be a valuable tool
• Allows you to obtain something you want without
waiting until you can purchase it
• Important if you want to buy a home or car
• Making monthly payments can teach financial
discipline
• Analyzing financial situations to see if you can afford
an item teaches important life skills
• Can be VERY dangerous though!
• Americans have $2.4 Trillion dollars in debt
• People borrow more than they can repay
• Unexpected job loss can put unlucky or careless
consumers into financial ruin
Responsibilities as Borrower
• Ask yourself these questions:
• What is the APR?
• Will the APR stay the SAME throughout the duration of the
contract, or will it change?
• How big are the payments?
• How OFTEN will I have to make payments?
• How LONG will I make repayments?
• What are the FEES for late payments?
• Are there any other fees?
• Review your budget carefully, and adjust where you need to
• One thing to think of: How long will your income support
credit payments?