Transcript Credit
Credit is the privilege of using someone else’s money for a period of time and is accepted as a substitute for cash Creditor is any person/ business that grants a loan or sells on credit Debtor is any person/ business that buys on credit or receives a loan Advantages: 1. Instant Enjoyment 2. Convenience 3. Emergencies 4. Savings 5. Credit Rating 6. Purchase Record 1. 2. 3. 4. Credit Costs Impulse Buying Overbuying Financial Difficulties Charge Account- contract between a consumer and a retailer for sales in the retailer’s stores (Revolving credit account- allows consumers to charge purchases at any time, but they must pay a minimum monthly payment until the account is paid in full) Layaway- the store sets the product aside while the customer makes equal payments for a set numbers of weeks until the price is paid in full Bank-Issued (Visa or MasterCard): financial institutions issue cards to customer whose credit rating is good Travel & Entertainment Cards (American Express): Consumers use these cards to pay for such services and products Term Loans: form of installment credit in which the borrower agrees to make fixed monthly payments over a period of time or term Demand Loans: special kind of short term loan with flexible payments Students Loans: guaranteed by both the federal and provincial gov’t and are available through most banks Mortgage Loans: a long-term credit plan for buying property Principal (the amount of money borrowed) is the chief factor in determining the interest cost Other factors: • The term for repaying the loan • Current interest rates • Inflation and general economic conditions • Security or collateral • Risk and credit rating Term: of the loan also determines the interest rate Depending on the principal involved and the borrower’s credit rating, collateral may be required as security for a loan. When a borrower offers a home, a car, or stock and bonds as collateral, the risk of the loan is reduced because the lender can sell this security if the borrower fails to repay the loan The borrowers credit history and credit rating also affect the cost of a loan. A borrower who has a record of borrowing money and repaying it promptly will probably get a competitive interest rate from the lender Credit Application: an information form that a borrower must complete before being granted a loan, charge account, or credit card. The completed credit application helps the lender make a decision about granting credit or approving loan Credit Worthiness: before lenders decide whether or not to grant credit or a loan Character: refers to a borrower's willingness to repay a loan when it’s due Capacity: refers to a borrower’s ability to make payments on time and to pay a debt when it’s due. Capital: is the value of a borrower’s assets Credit Application: Lenders check the info on a credit application Credit Bureaus Is a business that gathers credit information on all borrowers in a particular region for the purpose of selling that information to credit grantors