Unit7:BorrowingMoney
PersonalFinancialLiteracy
Objec-ves
• Iden-fywaystoestablishagoodcreditrecord.
• Discusstheimportanceofreviewingcreditreports.
• Determinehowandwheretogetaccuratecreditscores.
• Formulateop-onsforfinancingavehicle.• Discussfactorsthatinfluencethevehicleyouleaseorpurchase.
Objec-ves-Con-nued
• Listtheadvantagesanddisadvantagesofleasinganautomobile.
Credit
• Supplyofmoney,goods,orservicesinpresent-meinexchangeforpromiseoffuturepayment
• Goodwaytoobtainthingsyouwantandneed• Canleadtofinancialproblems
What’sonaLoanApplica-on?
• Asksfor:– placeofemployment– lengthofemployment– howmuchyouearn– assets– howlongyou’velivedatyourresidence– whatyou’repayingforhousing– financialaccountsandcreditreferences
CreditRecord
• Borrowingandrepaymenthistory• Howmuchyouowecreditors• Historyoflatepayments• Canstartasearlyasage16• Onrecordupto7years(longer,ifyou’vedeclaredbankruptcy)
• Sourcesofincome
CreditRecord
• Typeofhouseyoulivein• Anylegaljudgments• AREN’Tallowedtoreveal:– Gender– Religion– Race– Age– Countryoforigin
HowtoEstablishCredit
• Payu-litybillson-me• Havesavingsandcheckingaccount
• Makedepositsanddon’tbeoverdrawn
• Applyforcreditcardorcreditcard
• Makecreditcardpurchasesandpaythemoff
ManagingCreditRecord
• Paybillsbeforetheyaredue• Makemorethanminimumpayment• Keepbalanceslow• Don’toveruseorapplyfortoomanycreditcards
• Makeregulardepositstosavingsaccounts
CreditReports
• Equifax,Experian,andTransUnion• Reviewannually• Freereportfromeachcreditbureaueachyear
TheFourCs
• Character• Capacity• Capital• Collateral
FICO
• Basedon:– Credithistory(35%ofscore)– Currentlevelofdebt(30%)– Lengthof-meusingcredit(15%)– Applyingfornewcredit(10%)– Typeofcreditused(10%)
FICO
• Scoresrangefrom300to850• Determineswhetheryouqualifyforloanandtheinterestrate
WheretoBorrow
• Consumerfinancecompanies
• Financialins-tu-ons• Insurancecompanies• Loansharks • Pawnbrokers • Paydayloans • Privateloans
VehicleLoans
Consider:• Interestrate• Monthlypayments• Lengthoftheloan• Downpaymentortrade-in• Balloonpaymentclauseoraccelera-onclause
ResearchingCarPurchase
• ConsumerReports• CarandDriver• www.edmunds.com• www.kbb.com• Carfax
AAAAverageCostsPerMile
Deprecia-on
• Newcarloses20%ofitsvalueimmediately.• Mostofacar’sdeprecia-onoccursinthefirsttwoyears.
LeasingAdvantages
• Lowermonthlypayments• Candriveamoreexpensivecar• Driveanewcarevery2to3years(tendstobemorereliable)
LeasingDisadvantages
• Mileagelimit• Moreexpensive• Finesfordingsordents• Neveractuallyownthecar
UnitReview
1. Discusswhatcreditis,itsbenefits,andpoten-alproblems.
2. Howdoesapersonbeginestablishingacreditrecord?
3. Describewhatcanbedonetoestablishagoodcreditrecord.
4. Namethethreemajorcreditbureaus.
UnitReview-Con-nued
5. Whyisitimportanttoreviewcopiesofyourcreditrecord,andisthereanythingthatcanbedoneifacreditreporthaserroneousinforma-on?
6. Describetherela-onshipofcreditbureauswithlendersandcreditors.
7. DescribethefourC’sofcredit.
UnitReview-Con-nued
8. Whatisthemostcommonlyusedcreditscore,andhowisitcompiled?
9. Explaintherela-onshipofFICOscoresandinterestrates.
10. Describeatypicalvehicleloan.11. Compareandcontrastthevarioussourcesof
loans.
UnitReview-Con-nued12. Discussthefactorsthatshouldbeconsidered
whenshoppingforavehicleloan.13. Wherecanyoufindimpar-alinforma-on
aboutmakesandmodelsofvehicles?14. Discussinforma-onthatcanberesearched
whenshoppingforacar.15. Howarenewvehiclesaffectedby
deprecia-on?
UnitReview-Con-nued
16. Howdousedvehiclesaffectdeprecia-onandwhatareotherconsidera-onswhenpurchasingausedvehicle?
17. Discusstheadvantagesanddisadvantagesofleasingavehicle.