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30 Cards in this Set
- Front
- Back
When should credit be avoided?
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****When a product is not needed or wanted, resist the sales pressure to buy immediantly.
When something can be bought with cash.**** |
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Closed Ended Credit
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Specific purpose and amount such as a mortgage.
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Open Ended Credit
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Spent freely as long as it doesn't exceed credit line such as a credit card.
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Inexpensive loans
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Family, money borrowed on financial assets, U.S Department of Education
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Medium Priced Loans
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Banks and other financial institutions
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Expensive Loans
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Checks, Finance Companies, Tax refund loan
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Cash Advance
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loan billed to credit card which has high interest. Only use in emergency
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Finance Charge
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total dollar amount to pay for credit
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Truth in Lending Law
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****creditors state cost of borrowing in dollar amount****
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Annual Percentage Rate(APR)
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Percentage cost of credit on yearly basis
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People choose longer term financing(smaller payments). What is the effect of this?
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****longer term at given interest rate will cause an overall higher cost than short term, low payments.****
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What is the effect of low fixed payments with large final payment?
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****Can increase cost of borrowing because of more risk****
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Variable interest rate
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based on rates of banking system. Share interest rate with lender so lower initial interest rate.
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Secured Loan
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pledge property or other assets as collateral. Will get lower interest rate on loan
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Up-Front Cash
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Pay cash for large portion and creditors will believe you will be more likely to repay loan. Better chance of getting terms you want but would lose interest you could have earned in a savings account.
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Shorter Term
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Shorter the period of time for which you borrow, the smaller the chance that something will prevent from repaying. Borrow at lower interest rate if if short term loan but higher payments.
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Simple Interest
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Interest computed on principal only and without compounding. Dollar cost of borrowing money.
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Declining balance method
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More than one payment on simple interest loan
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Add-on interest method
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interest is calculated on full amount of original principal
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Adjusted Balance Method
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charges left after balance subtracted
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Previous Balance Method
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Charges with no credit for payments
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Average Daily Balance Method
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weighted average of account balance
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Rule of 78s
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Determine how much interest has been paid in the term so far
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Credit Insurance
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ensures repayment of loan if borrower can't pay
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Fair Debt Collection Practices Act
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Prohibits certain practices that collect debts
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Consumer Credit Counseling Services
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****local organization that focuses on debt counseling****
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Bankruptcy Abuse Protection and Consumer Protection
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pay off portion of debt
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Chapter 7 Bankruptcy
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Most debts are forgiven not including alimony, child support, fines, educational loans, and malicious acts
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Chapter 13 Bankruptcy
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plan for extinguishing debts from future earnings or property over a period of time. Must pay court costs, attorney fees, and trustee fees.
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Chapter 11 Bankruptcy
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Business bankruptcy reorganization request.
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