GET A TEXTBOOK

GET A NOTES SHEET

START FILLING IN THE VOCABULARY (TOP SECTION)

Tuesday

SOURCES OF LOANS AND CREDIT

Chapter 4-Section 2

Types of Financial Institutions

1. Commercial Banks Bank who’s main function is to accept deposits, lend funds, and transfer funds among banks, individuals, and businesses.

**Largest amount of funds**

Functions: Checking, Savings, Loans for individuals, businesses and between banks.

Examples: Any bank we are familiar with:Bank of the WestWells Fargo, Union Bank, First Bank, Etc.

2. Savings and Loan Association

Depository institution that accepts deposits and lends funds.

Functions:Personal MortgagesCommercial MortgagesAuto Loans

Examples:

3. Savings Banks

Depository institutions originally set up to serve small savers overlooked by commercial banks.

Functions:Similar to S & LMortgagesPersonal & auto loansChecking

4. Credit Unions

Depository institution owned and operated by its members to provide savings accounts and low-interest loans only to their members.

Functions:Lower interest loansHigher interest on savings

Examples:NE Educators C.U.; NE Energy Fed’l C.U.; Other companies that have C.U.’s: Goodyear, State Farm, etc.

5. Finance Company

Company that takes over contracts for installment debts from stores and adds a fee for collecting the debt.

Consumer Finance Company--makes loans directly to consumers at relatively high interest rates.

Examples:Payday Advance companies

Paycheck Advance Companies

How do they make sure the borrow will repay their loan? Take care titles as security

What do you think would happen if the borrow didn’t repay their loan? Loan company would take possession of the car

Sometimes charge 30%Can spiral a persons financial situation until

you’d possibly be paying a whole paycheck in fees.

Charge Accounts- 3 Options

Charge Accounts – credit extended to a consumer from a particular store.1. Regular charge account – pay in full after 30 days

No interest if paid in 30 days

2. Revolving charge account – Can make more charges even if you haven’t paid in full.

Interest charged on unpaid balance

3. Installment charge account – equal payments spread over time.

Examples: major items—sofas, televisions, refrigerators

What you need to Know!

What does this mean?

What about interest?

OTHER CHARGE OPTIONS

“90 Days same as Cash”

You have 90 days to pay without store charging interest

IF you are a DAY late, you pay all the BACK INTEREST!!!

Higher interest rate than usual

Credit Cards vs. Debit Cards

Like charge accountsCan be used at most

stores in U.S. and even foreign countries Examples: Visa,

MastercardCan borrow cash (like

access to a loan)Must provide a

signature

Electronic transactions from your bank account

Need a PIN instead of signature

Do NOT provide loans or credit!

Compare & Contrast

Finance Charges & Annual Percentage Rate(The cost of credit)

Finance charge – cost of credit expressed monthly in dollars and cents Interest costs plus any other charges connected with credit are

taken into account.

Computed in 4 Different Ways:1. Previous Balance2. Adjusted Balance3. Average daily Balance4. Past due Balance

Annual Percentage Rate (APR)

Cost of credit express as a yearly percentage.

What does that mean?

A company that charges 18% APR would charge you $18 ANNUALLY for every $100 unpaid throughout the year

Stores have to pay a percentage of credit purchases to the company that issued the card.

Did you know?Why would they accept credit cards?How does this charge get passed on to consumers?

APPLYING FOR CREDIT

Section 3

What would you do?

What factors in to

your decision?

How long would you give them to pay it back?

A friend wants to borrow money from you. Would you lend it to him or her?

Some Vocabulary

Credit Bureau – private business that investigates a person to determine the risk involved in lending to that person.

Credit Check – Investigation of a person’s income, current debts, personal life, and past history of borrowing and repaying debts.

Credit rating – rating of the risk involved in lending to a person or business

Three C’s of Creditworthiness

Capacity to Pay ~ How much debt do you have in relation to your income.

Character ~ financial reputation as a reliable and trustworthy person.

Collateral ~ something of value that a borrower lets the lender claim if a loan is not repaid.

Cosigner (if needed) ~person who signs the loan with you and promises to repay if you do not.

Friday

Bell ringer #2Chapter 4 Section 3 NotesCredit Card Comparison

If needed, time to finish glue activity from yesterday

Bell Ringer

Name 3 of the 5 C’s of CreditGive an example of each

Will you be able to get credit?

Several factors determine a person’s creditworthiness. When applying for credit:– You will be asked to fill out a credit application.– The lender will hire a credit bureau to do a

credit check.– The credit bureau will provide the creditor with

a credit rating for you.

What factors might negatively affect your credit score?

Higher the score, the less risk the person represents

Higher scores get better interest rates

AnnualCreditReport.com

Can get a free credit report every 12 months from:

• Equifax• TransUnion• Experian

What hurts your credit rating?Late paymentsHigh debt-to-income ratioHaving many open accountsPrevious bankruptcyUnemploymentLegal trouble

Secured Loan Unsecured Loan

Backed up with collateral.

Can be the item being purchased (house, car, etc.)

Guaranteed only by a promise to repay it.

Not back with Collateral.

Interest rate is usually higher

Types of Loans

Responsibilities of a Borrower

Paying your debts on timeKeeping a complete record of all the

charges you have madeNotifying the issuer if your card has

been lost or stolen

GET BOOKS AND NOTES OUTBELL RINGER TIME – FILL IN TWO

VOCABULARY WORDS ON NOTES CH. 4-SECTION 4

TODAY:BELL RINGER, SECTION 4 NOTES

FINISH GUIDED READING 4-3 & 4-4 – HAND IN

REMINDERS:TEST THURSDAY

ALL “LATE” WORK DUE THURSDAY TOO!

Monday

GOVERNMENT REGULATION

OF CREDIT

Section 4

Government Regulations of Credit ~Laws Protecting Borrowers

Laws Continued…

2. Equal Credit Opportunity Act

prohibits providers from denying credit based on race, religion, national origin, gender, marital

status, or age.

Laws Cont…

Personal Bankruptcy

Bankruptcy—the state of legally having been declared unable to pay off debts owed with available income.

Used only as last resort!When bankruptcy is approved through bankruptcy

court, debtors must give up most of what they own, which is then distributed to the creditors.– By law, certain debts, such as taxes, must

continue to be paid.– Bankruptcy proceedings remain on your credit

record for 10 years.

DFS Trans 2

DFS Trans 1

DFS Trans 3

DFS Trans 4