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					Credit and You

  Chapter 11.2
          What You’ll Learn
• Define finance charge and annual
  percentage rate
• Describe the advantages of using a credit
• Determine how to obtain student loans
• Recognize the warning signs of debt
            Organize This…
• Advantages of Credit • Disadvantages of Credit
  – Finance Large         –   ?
    Purchases             –   ?
  –?                      –   ?
  –?                      –   ?
  –?                      –   ?
  –?                      –   ?
     Why is this Important???
• There are things you need to know if you
  want to finance a car, get a credit card, or
  take out a student loan.
Financing Future Goals
             Buy a Home

                          Or Car

  Buying a Car (Whip, Buggie)
• How much car can you afford?
  – Well it depends on
     •   Savings
     •   Monthly Earnings
     •   Living Expenses
     •   And, the Amount of Debt you have

• In your notebook, write down a list of
  monthly things you buy… Gas, Food,
  Entertainment, Cell Phone, and Etc.
        Financing a Vehicle
• How can you save money on buying a
  – Pay cash
  – Financing any loan has charges… Called
     • Interest and Finance Charges

• A Finance Charge is the cost of the
  loan in dollars and cents. The APR
  is the true interest Rate of the loan.
Before you Sign a Loan Document
• Know:
  – The exact price you are paying for the car
  – The amount you are financing
  – The finance charge
  – The APR
  – The number and amount of payments
  – The total sales price (which equals the sum
    of the monthly payments plus the down
    • Find a Car
    • Calculate the Cost
     How to Cut Your Monthly Payments
                 i = 7.29%
                 Car      Car w/ Down     Car w/ 60
                         Payment (20%)   month loan

  Price        $20,000     $20,000        $20,000

Total Sales
   Price      $23,652    $23,201         $25,320
  Down           $0         20%             $0
 Term of      36 Month    36 Month       60 Month
the Loan
Payment        $657        $533           $422
• If you are a teenager in high school, or a college student
  with no established credit history, there are a number of
  barriers in the way to your entry into car ownership. …
   – How are you going to pay for your new car?
   – Have you gotten insurance quotes?
   – Who will finance you?
   – Now you have to pay $80 a month in gas, and there's
      oil changes, and other unexpected expenses..
• You must also put down 20% on the car to keep from
  getting upside down, where you owe more on the car than
  it is worth. If you cannot put down 20% on the car, then do
  not buy that car. You must buy a car in which you can
  afford to put down 20%.
   – You never ever want to be in the position of owing more
      than your car is worth.
• If you determine that you can afford a new car, then make
  sure you enter new car dealers with The Folder of
  competitive new car price quotes, or you'll overpay by

• Barriers to getting your first car
  Since you have never bought a car before, here are the
  barriers and concepts you must keep in mind when car
   – Lack of credit history is the biggest barrier, it is very
     difficult to get a car loan
   – Some car salespeople will rake you over the coals if you
     are a first time car buyer
   – Lenders won't approve car loans on used cars older than 5
   – Insurance rates for teens especially are very costly, often
     in the $5000 range
   – Insurance rates for single males under the age of 25 are
     also very costly
   – Now you have to deal with car repairs and other
     maintenance costs, new tires, etc.
   – Safety perspective: Teen driving safety issues
Oops you bought a Lemon
    Lemons (AKA Defective Vehicles)
•    Some cars continually have mechanical
     problems. The SELLER may be liable if:
    1. Breach of an express warranty
    2. Breach of warranty of merchantability (Car
       was not fit to drive)
    3. Fraud of warranty (seller made statements
       about the car that were not true)
    4. Breach of state consumer protection law (if
       the vehicle was for non-business use)
        Oops you bought a Lemon
                                  Breach of warranty of
                                  merchantability (Car
                                  was not fit to drive)
  Breach of an express warranty

                                               Breach of state
                                                  protection law
Fraud of warranty
                                                  (if the vehicle
(seller made
                                                  was for non-
statements about the
                                                  business use)
car that were not
         Using Credit Cards
• When you use a credit card you are
  borrowing money. The interest rate and
  late-payment fees can be very high unless
  you pay your bill by the due date.
  – Credit Card vs. $200 Cash
    • Which is safer in your wallet?
       – Credit Card but why?
       – If your card is lost or stolen you only have to pay up $50
         in unauthorized charges MADE BEFORE YOU NOTIFY
         NOT responsible for charges made after the issuer has
         been notified.
• Tara lost her credit card but did not
  notify the card issuer for a week.
  Meanwhile, someone who found the
  card had charged a purchase of $175
  with it. Tara will have to pay $50
  toward this unauthorized purchase. If
  she had notified the card issuer before
  the illegal purchase happened,
  however, she would not have to pay
• Tim charged many items on his credit
  card, up to its $2,000 limit. Each month
  he pays $40 on the account. (Which is
  what percentage of the limit?) The
  interest rate is 19%. If Tim maintains
  the same payment rate, it will take him
  33 years to pay off his debt.
  – He will pay $7,000 in interest on his $2,000
             Student Loans
• What can you do if you cannot afford to
  pay for college?
  – There are 2 types of student loans,
    Government and Private.
  – Government are often
     Cheaper (What makes
     Them cheaper?)

     Lower Interest Rates
   Government Student Loans
• The government is a huge
  student loan lender.
  – Under the Direct Loan Program,
    money is lent to students based on
     • First step, fill out a FAFSA (Free
      Application for Federal Student Aid.)
      This form will ask about you and your
      family. The government then makes
      a determination about how much
      money it can loan the student. The
      figure is also based on the amount
      necessary to attend a specific
Government Student Loans
 •Now there are 2 types of loans
– Subsidized             – Unsubsidized
– The government         – You pay for the
  pays for interest on     interest throughout
  the loan while you       the entire life of the
  are IN SCHOOL.           loan.
– You pay the
                                          I’ll pay,
  interest once your
                                          I guess
                Private Loans
• More expensive (Higher interest rates)
• The amount of money offered is based on
  the cost of tuition at your specific school.
• Just like an unsubsidized loan… you are
  responsible for all the interest : (
  – There are private loans that parents/
    guardians can take out to help pay for their
    children’s loans.
     • Google’s list
• The book says, “Student loans in most
  circumstances must be repaid.”
  – Really
• Student loans can be discharged in
  bankruptcy, but only in cases of extreme
  – But the government will discharge your loan if
    you enter a special job program after
• A program like:
   – the Americorps
   – Or the Peace Corps
• But you must work in
  the health, education,
  or public safety field in
  an underdeveloped
  community for a certain
  period of time.
 Ways to Build and Protect Your Credit
                 •Open a Checking account
                 •Apply for a local department store
                 credit card
                 •Take out a small loan from your bank
                 •Make payments on time

MUST                                   •Refuse you individual credit in your own
•Evaluate all applicants on the same   name if you are creditworthy
basis                                  •Require your spouse to cosign a loan.
                                       Anyone can be your cosigner
•Consider income from part–time jobs
                                       •Ask about your family plans or assume that
•Consider payment histories of all     your income will be interrupted to have
account                                children.
•Disregard info on accounts if you     •Consider whether you have a telephone
prove that it does not affect your     listing in your name.
ability to repay
Warning Signs of Debt Problems
    Warning Signs of Debt Problems
•   You may be in Financial trouble if:
    1. You make only the minimum monthly payment on
       credit cards or have trouble paying even that
    2. The total balance on your credit increases every
    3. You miss loan payments or often pay late
    4. You receive 2nd or 3rd payment due notices from
    5. You borrow money to pay off old debts
    6. You exceed the credit limits on your cards
    7. You have been denied credit because of a bad
       credit rating.
• Joe’s parents gave him a credit card to use for
  textbooks, supplies, and in case of an
  emergency when he went to college. He was
  short on funds and used the credit card to buy a
  new computer game at the campus bookstore.
  The purchase would show up as computer
  software, so his parents would assume the
  purchase was a required school supply.
  – Was Joe’s purchase of the computer game without
    his parent’s permission ethical? Why or Why Not?
    Answer these in your Notebook
•   How does credit benefit both the buyer and the seller?
•   How can you prevent unauthorized use of credit cards?
•   Why does buying a car with cash save you money?
•   What are the costs associated with using a credit card?
•   What does the government’s Direct Loan Program base
    lending upon, and how does one apply for it?
•   Why would our government lend money to students and
    offer ways to forgive loans?
•   On what grounds can a seller be liable for selling a
•   What can you do if you have a dispute involving a
    purchase on a credit card?
•   What is the difference between a subsidized and an
    unsubsidized student loan?
•   You want to buy a car for $8400, but you must put down
    your 20%. How much is your down payment?
• Give some examples of open-end credit and
  closed-end credit.
• What are the main types of collateral?
• What are future advances of credit?
• What makes a loan secured?
• What is another name for sureties?
• What are the 3 ways securities are attached?
• What is another name for collateral?
• What is a security agreement?
• What is a secured party?

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