unit 7: borrowing moneynwtech.edu/alvacc/wp-content/uploads/2019/10/unit-7-frascht.pdf · • list...
TRANSCRIPT
Unit7:BorrowingMoney
PersonalFinancialLiteracy
Objectives
• Identifywaystoestablishagoodcreditrecord.
• Discusstheimportanceofreviewingcreditreports.
• Determinehowandwheretogetaccuratecreditscores.
• Formulateoptionsforfinancingavehicle.• Discussfactorsthatinfluencethevehicleyouleaseorpurchase.
Objectives-Continued
• Listtheadvantagesanddisadvantagesofleasinganautomobile.
Credit
• Supplyofmoney,goods,orservicesinpresenttimeinexchangeforpromiseoffuturepayment
• Goodwaytoobtainthingsyouwantandneed• Canleadtofinancialproblems
What’sonaLoanApplication?
• Asksfor:– placeofemployment– lengthofemployment– howmuchyouearn– assets– howlongyouhavelivedatyourresidence– whatyouarepayingforhousing– financialaccountsandcreditreferences
CreditRecord
• Borrowingandrepaymenthistory• Howmuchyouowecreditors• Historyoflatepayments• Canstartasearlyasage16• Onrecordupto7years(longer,ifyou’vedeclaredbankruptcy)
• Sourcesofincome
CreditRecord
• Typeofhouseyoulivein• Anylegaljudgments• AreNOTallowedtoreveal:– Gender– Religion– Race– Age– Countryoforigin
HowtoEstablishCredit
• Payutilitybillsontime• Havesavingsandcheckingaccount
• Makedepositsanddon’tbeoverdrawn
• Applyforcreditcard• Makecreditcardpurchasesandpaythemoff
ManagingCreditRecord
• Paybillsbeforetheyaredue• Makemorethanminimumpayment• Keepbalanceslow• Don’toveruseorapplyfortoomanycreditcards
• Makeregulardepositstosavingsaccounts
CreditReports
• FICO,Equifax,Experian,TransUnion• Reviewannually• Freereportfromeachcreditbureaueachyear–doesnotincludeacreditscorethough
TheFourCs• Character–Yourreputationasaborrower.Howresponsible
haveyoubeen?Haveyouhadlatepaymentsordelinquentaccounts?
• Capacity–Aborrower’sabilitytopaybackhis/herloan.Maycomparedebttoincomeanddebtthatyoutakeonandpayoffregularly.
• Capital–Whatyouownsuchasmachineryandequipmentorcash.
• Collateral–Assetsthatalendercantakepossessionofifaborrowerdefaultsonhis/herloan.
FICO• TypeofcreditscorecreatedbyFairIsaacCorporation
• Basedon:– Credithistory(35%ofscore)– Currentlevelofdebt(30%)– Lengthoftimeusingcredit(15%)– Applyingfornewcredit(10%)– Typeofcreditused(10%)
FICO• Scoresrangefrom300to850• Determineswhetheryouqualifyforloanandtheinterestrate
WheretoBorrow
• Consumerfinancecompanies
• Financialinstitutions• Insurancecompanies• Loansharks • Pawnbrokers • Paydayloans • Privateloans
VehicleLoans
Consider:• Interestrate• Monthlypayments• Lengthoftheloan• Downpaymentortrade-in• Balloonpaymentclauseoraccelerationclause
ResearchingCarPurchase
• ConsumerReports• CarandDriver• www.edmunds.com• www.kbb.com• Carfax
Depreciation
• Newcarloses20%ofitsvalueimmediately.• Mostofacar’sdepreciationoccursinthefirsttwoyears.
LeasingAdvantages
• Lowermonthlypayments• Candriveamoreexpensivecar• Driveanewcarevery2to3years(tendstobemorereliable)
LeasingDisadvantages
• Mileagelimit• Moreexpensive• Finesfordingsordents• Neveractuallyownthecar
UnitReview1. Discusswhatcreditis,itsbenefits,and
potentialproblems.2. Howdoesapersonbeginestablishinga
creditrecord?3. Describewhatcanbedonetoestablisha
goodcreditrecord.4. Namethethreemajorcreditbureaus.
UnitReview-Continued5. Whyisitimportanttoreviewcopiesofyour
creditrecord,andisthereanythingthatcanbedoneifacreditreporthaserroneousinformation?
6. Describetherelationshipofcreditbureauswithlendersandcreditors.
7. DescribethefourC’sofcredit.
UnitReview-Continued8. Whatisthemostcommonlyusedcredit
score,andhowisitcompiled?9. ExplaintherelationshipofFICOscoresand
interestrates.10. Describeatypicalvehicleloan.11. Compareandcontrastthevarioussourcesof
loans.
UnitReview-Continued12. Discussthefactorsthatshouldbeconsidered
whenshoppingforavehicleloan.13. Wherecanyoufindimpartialinformation
aboutmakesandmodelsofvehicles?14. Discussinformationthatcanberesearched
whenshoppingforacar.15. Howarenewvehiclesaffectedby
depreciation?
UnitReview-Continued16. Howdousedvehiclesaffectdepreciation
andwhatareotherconsiderationswhenpurchasingausedvehicle?
17. Discusstheadvantagesanddisadvantagesofleasingavehicle.