Credit

Law in Society

Objective: To understand the use of and acquisition of credit.

Bell-Ringer What is the difference between a debit

card (ATM) and a credit card?

Bell-Ringer – Q2-Week 8 - 1/12/09

During a big snowstorm, a woman asks two young men to help her get her car out of her parking spot. They push for and shovel for 15 minutes. After she gets out they ask her for $10.00 each, but she refuses. Is she in breach of a contract?

What is it? Credit Creditors Debtors Finance charge Interest rate Unsecured credit Secured credit Collateral Annual percentage rate

What is credit? Credit is like a financial reputation.

It is a means for buying goods and services now, but paying for them at a later time.

Banks and other lending institutions take a risk that you will be responsible.

Your ability to pay your debts is your “credit history.”

Creditors lend money or credit. Debtors borrow money or buy with credit.

Debtors pay an additional finance charge to the creditor to borrow money.

This is made up of interest and other fees.

Annual Percentage Rate (APR): What you would pay interest over the course of a year. (Divide by 12 for monthly interest.)

Secured and Unsecured Credit Secured

Debtor uses collateral Debtor’s property is like

insurance Defaulting on a loan

means loss of collateral.

Business loans. Car loans.

Unsecured Credit for a promise. Your reputation. Your word matters.

Credit Cards

Bell-Ringer 1/13/09 Q2- Week 8

What is the difference between a credit card and an ATM (debit) card?

How much do you owe? You buy a dozen DVDs on sale for $99.00.And you charge it on your credit card. Your

APR is 18%.

You receive your billing statement indicating that you owe $99.00. Your interest rate is 1.5% What is your balance?

How much do you owe? You pay $59 of the bill. The next month you receive your

statement. Now what is your balance?

APR 18%/12 = 1.5% per month

40.00 X .015 = $0.60 Balance: $40.60

What is the difference between a debit card and a credit card? Credit Card = borrowed money Debit Card = your savings or checking

http://www.bankrate.com/brm/news/credit-scoring/20031104a1.asp

When to use credit… Is it worth having the item before you have saved

enough money to pay for it? What items are good long-term investments or

necessities?

Car, home, large necessities, education… 75% of Americans carry some debt. Using credit can make items cost more. PAY YOUR BALANCE!!! Credit card users spend more.

Variable interest rates Good and bad. Rates can go down or up.

Currently many home buyers who purchased that obtained variable rate loans are not able to pay. Foreclosure.

Video : Frontline

http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

What do lenders want to know before giving you credit? Are you reliable? Are you stable? Do you have a steady income? Are you able to afford what you buy? Do you have a good credit history?

Equal Credit Opportunity Act Protects consumers based on sex, age, marital

status, race, religion, etc….

Costly Credit Arrangement Warning!!!!!!

Balloon payment Last payment larger than the rest

Acceleration clause Miss payment-lender can demand faster

payment Bill consolidation

All debts combined under one rate

Truth in Lending Act Creditor must tell you in writing:

Before you sign Finance charge APR Rules for late payments

Denied Credit? Poor risk??? Equal Credit Opportunity Act

Creditors must inform consumers why they were denied.

Ability to know info in your credit file and dispute errors.

Default Unable to pay off loan for whatever

reason.

What can you do…? Start a budget Notify creditors immediately. Seek consumer credit counseling. Seek assistance from friends and family.

Bankruptcy Cannot pay Assets put in hands of federal courts to

resolve. Long-term consequences Stain on credit for 10 years or more No escaping taxes, child support, student

loans, alimony

Creditor Collection Repossession Court Action – sue

Results Garnishment - withhold money from your check Attachment – force bank to pay creditor from debtor

accounts.