Personal Finance
Unit 4-Credit
Chp. 10
Day 4
Activity
Review Credit Applications
Two Forms of Consumer
Borrowing
Loans
You receive an amount of money, then
make specified payments, with interest, by a
certain date.
Credit card accounts
Add purchases to your account and pay
back whatever you want each month as long
as you pay the minimum amount due.
Two Types of Loans
Secured loan-backed by something of
value pledged to ensure payment.
Collateral-the property pledged to back
a loan.
Ex.-House to back a mortgage loan.
Secured Loans (cont.)
Safe for the lender because the debt will
be repaid.
Most are also installment loans.
Installment loan-repaid in a certain number
of payments with a certain interest rate that
stays fixed for the term of the loan.
Also known as closed-end credit.
Two Types of Loans
(cont.)
Unsecured loan-not backed by any
collateral.
Generally have higher interest rates.
Example-most credit cards.
Also known as open-end credit.
Sources of Consumer
Loans
Most common sources are:
banks
savings and loan associations
credit unions
Other Sources of Consumer
Loans
Finance companies-more willing to lend to
those with no credit history or a poor credit
rating.
Interest rates are higher.
Payday Loans-small cash advances offered
by finance companies and check-cashing
services before you are paid.
Charge a high fee.
Life insurance companies-borrow against the
money in your policy.
Loan is easy to get and lower interest.
Other Sources of Consumer
Loans
Credit card cash advances-you get cash and
it is added to your credit card bill.
High interest rate.
Pawnbrokers-you give them personal
property, they give you cash.
High interest rates.
To get your things back you have to repay the
loan plus a fee.
Rent-to-Own Companies
Don’t pay interest, but you pay more to rent than it
may be worth.
Handout
Types and Sources of Credit
Video
The Credit Monster
Assignment
Test Your Knowledge worksheet:
3C’s and Types of Credit due tomorrow!