Understanding the Difference Between Cash and Credit

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					Understanding the Difference
  Between Cash and Credit
Credit
 Credit: The ability to obtain goods or services before
  payment, based on the trust that payment will be made in the
  future
 What items can you buy using credit?
   Clothes
   Groceries
   Gas
   Vehicle
   House
   Household appliances/electronics
Interest
 Interest: The fee charged by a lender to a borrower for the
  use of borrowed money, usually expressed as an annual
  percentage of the principal
   The amount of interest you pay for your vehicle or house is
    based on the amount of the loan
   Credit Card
 Credit card: A card issued by a financial company giving the
  holder an option to borrow funds, usually at point of sale.
   Credit cards charge interest and are primarily used for short-term
    financing.
   Interest rate is expressed as Annual Percentage Rate (APR)
   You do not have to pay interest if you pay off your credit card bill in
    full each month
Calculating Interest
 Credit card balance is $2,000.00
 APR is 28%
 How much interest will you have to pay in one month?
   28%/12 = .023
   2,000 *.023= $46.67
Calculating Interest
•Mortgage Loan of $150,000
•Interest Rate of 7%
•Loan term: 30 years

•How much do you think you will have to pay the
bank in 30 years?
In 30 Years You Will Pay……

     $359,263.35
Difference between cash and credit
 What are the benefits of using cash versus credit?
   No Interest
   You are only paying the amount of the sale
 What are the benefits of using credit versus cash?
   You can buy things that you normally couldn’t buy
   Stimulate the economy
   Without credit, not too many people would have a home or car

				
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posted:10/2/2012
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