introduction to business and marketing chapter 26.2
TRANSCRIPT
MAINTAINING CREDITIntroduction to Business and MarketingChapter 26.2
THE MAIN IDEA• There are several similarities and
differences between credit cards,
installment loans, and
mortgages.
• Keeping a good credit rating is
important if the consumer is
interested in getting loans at a
reasonable cost.
UNDERSTANDING LOANS AND MORTGAGES• Loans and mortgages are
similar to other types of
credit
• They allow consumers to
borrow money that will
be paid back with
interest
HOW INSTALLMENT LOANS & MORTGAGES WORK
• A loan is money lent by one
party to another with interest,
usually requiring collateral.
• A mortgage is a loan
agreement secured by
property, usually the item that
the mortgage is for, such as a
home.
HOW INSTALLMENT LOANS & MORTGAGES WORK• Installment or mortgage
loans can have a
variable rate of interest
or a fixed rate of
interest.
Variable Ratean interest rate that fluctuates or changes over the life of the loan
Fixed Ratean interest rate that stays the same over the life of the loan
HOW INSTALLMENT LOANS & MORTGAGES WORK• Installment and mortgage
loans usually require the
applicant to give a down
payment.
• On a simple interest loan,
interest is based on the
original principal alone
Down Paymenta portion of the total cost that is paid when a product or service is purchased
Principalthe amount of borrowed money that is still owed and on which interest is based
HOW INSTALLMENT LOANS & MORTGAGES WORK
• A finance charge
includes the interest
and any other
charges, such as the
application fee.Finance Chargethe total amount it costs the borrower to have the lender finance the loan
SECURED & UNSECRED LOANS• A mortgage is an example of a
secured loan.
• A credit card debt is an example
of an unsecured loan.
• Secured loans usually carry a
lower
interest rate.
Secured Loana loan that is backed by collateral
Unsecured Loana loan that is not backed by collateral
KEEPING A HEALTHY CREDIT RECORD• To continue using credit
or to get new credit,
you need to maintain a
good credit rating score.
• To get the best credit
rating, you need to pay
your bills on time.
FACTORS THAT AFFECT YOUR CREDIT SCORE
STAYING WITHIN YOUR INCOME LIMITS
• Experts say
consumers should not
use more than 20% of
their income for credit
payments
SIGNS OF CREDIT TROUBLE
Your Income
$2,000 per month
$1,500 after taxes
You should not use more
than 20 percent of your
income for credit payments.
Your Debt$120 for Student Loans
$160 for Car Payments
Your Wants
A new entertainment center for $50 per month for three years
CanYou
AffordIt?
No
Your total payments each month would be $330, or 22 percent of your take-home pay.
Remember
SIGNS OF CREDIT TROUBLE
1. You cannot make monthly loan payments
and minimum monthly payments on your
credit cards.
2. You receive second and third payment-
due notices.
3. You get calls from bill collectors.