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