credit

Borrowers & Lenders

Find Your Match!

Who’s Your Middle-Man???

Let’s Compare CD Rates.Which one is the bank, and

which one is the credit union?

A

B

The Spread

• Interest paid on savings acct’s is < interest charged on loans.

• The difference is called the SPREAD.

The Spread

• A bank pays 5% interest on its savings account.

• The bank takes some of the money deposited in savings accounts, & loans that money out.

• On average, the bank charges 11% on its loans.

• What’s the spread? Why does the bank do this?

Financial Institutions Clicker Quiz

1. The interest a bank pays on its savings accounts is generally

_________ the interest it earns on loans.

• A) the same as

• B) lower than

• C) higher than

2. A woman is considering purchasing a new lawn mower that costs $120. While employed,

the woman does not currently have enough money in her account to pay for this item.

Which of the following financial institutions would be the MOST likely to help her buy the

lawn mower?• A payday loan company

• B credit union

• C savings and loan

• D commercial bank

3) The main difference between a credit union and a commercial bank is that

• A. only commercial banks offer checking account services to its members.

• B. commercial banks make loans, but don't offer checking or savings account services.

• C. credit unions don't make home and car loans, whereas commercial banks do make home and car loans.

• D. credit unions are only available to specific customers, but commercial banks are available to the everyone.

4) In order for a bank to have the chance to make a profit, they

must• A. charge borrowers a lower interest rate

than they charge depositors.

• B. pay depositors a lower interest rate than they charge borrowers.

• C. charge borrowers a higher fee than they charge to depositors.

• D. charge borrowers and depositors the same interest rates.

5) A bank pays an average of 2% interest on it’s savings accounts and

CD’s. The same bank charges an average of 8% on loans. What is the

spread?

• A) 2%

• B) 6%

• C) 8%

• D) 10%

End

credit

Loans

• Longer term = higher interest rate

• The minimum most banks/credit unions will loan is $3-$5k.

• A “Payday Loan Company” will loan smaller amounts.

Loans

• Lowest Highest

• Credit Union- Bank- Credit Card- Payday Loan

Interest Rates Charged

How Do I Get Credit?

• Lender looks at your:

• 1) Income• 2) Debt (What’s a bad debt/income ratio??)

• 3) Repayment History (Credit Rating)

To build credit

take small loans & repay them on time

Your 1st Credit Card

How Credit Cards Work• 1) You use your credit card.

• 2) A bill comes at the end of the month.

• 3) If you pay the entire amount of the balance, no interest is charged.

• 4) Any remaining balance on the card will be charged (a usually high rate of) interest.

• 5) You can leave a balance on your credit card but you are paying interest every month on that balance.

• More to follow...

How Credit Cards Work

• 6) If you do not make the required minimum payment, – A) your credit score will be negatively affected.– B) your interest rate will probably increase.– C) your credit limit could be decreased.

• 7) If you only make the required minimum payment, it takes a really long time and a lot of money to pay it off.

• 8) Credit card companies can pretty much change the interest rate whenever they want.

Things Not To Charge On Your Credit Card

Credit Card Bill Activity

FICO Score Simulator

Improving Your Credit Score

Average Credit Stats

Should I Use Credit?

Should They Borrow Or Not???

1) All other things equal, if your loan has a shorter term, it should

have a _______ interest rate than if it had a longer term.

• A) lower

• B) higher

• C) equal

2) What has the biggest effect on your credit rating?

• A) level of education

• B) length of time spent working for your current employer

• C) balance in your savings account

• D) payment history on loans

3) A disadvantage of a credit card is that

• A) it is illegal to own one.

• B) it is very difficult for most people to qualify for one.

• C) the balance must be paid off every month.

• D) balances can rise quickly if only the minimum payment is made each month.

4) Making purchases on credit

• A) is never a good idea.

• B) is a good idea if the benefits to the purchase are greater than the costs.

• C) decreases the cost of the purchase to the borrower.

• D) is a good idea if the purchaser has so many credit payments that he or she is unable to live comfortably.

5) Which of the following is the best use of credit?

• A) You can’t buy everything on your current income.

• B) You can take advantage of a sale price that is lower than the normal cost of the item plus your cost of credit.

• C) You have a credit card with a low interest rate.

• D) You want to purchase something now instead of having to wait to use it.

6) People should avoid buying too many goods or services on

credit because:

• A. High interest charges increase the item’s price.

• B. Credit-card debt reduces discretionary income levels.

• C. High credit use reduces one’s opportunity to get an automobile or home loan.

• D. All of the above.

7) Credit worthiness is MOST AFFECTED by

• A. whether or not one owns a house.

• B. payment history on current loans.

• C. job history showing many different types of jobs.

• D. the amount of funds currently available in a savings account.