what is credit? section 22.1. understanding business and personal law what is credit? section 22.1...

What Is Credit? What Is Credit? Section 22.1Section 22.1

Understanding Business and Personal Law


Borrowing Money and Buying on Credit

Section 22.1Section 22.1What Is Credit? What Is Credit?

Section 22.2Section 22.2Credit Protection Laws Credit Protection Laws

Section 22.3Section 22.3Managing Your Debts Managing Your Debts

2222ChapterChapter Borrowing Money Borrowing Money and Buying on Creditand Buying on Credit




What You’ll Learn

How to distinguish between the different How to distinguish between the different types of credit (p. 484)types of credit (p. 484)

How to explain the Truth in Lending Act How to explain the Truth in Lending Act (p. 485)(p. 485)




What You’ll Learn

How to describe secured loans (p. 485)How to describe secured loans (p. 485)

How to guard against credit card How to guard against credit card problems (p. 488)problems (p. 488)




Why It’s Important

Knowing the laws that apply and the Knowing the laws that apply and the difficulties that can arise in using credit will difficulties that can arise in using credit will help you avoid problems in your personal help you avoid problems in your personal finances.finances.




Legal Terms

credit (p. 484)credit (p. 484)interest (p. 484)interest (p. 484)creditor (p. 484)creditor (p. 484)debtor (p. 484)debtor (p. 484)open-end credit (p. 484)open-end credit (p. 484)line of credit (p. 484)line of credit (p. 484)closed-end credit (p. 484) closed-end credit (p. 484)




Legal Terms

secured loan (p. 485)secured loan (p. 485)collateral (p. 485)collateral (p. 485)security interest (p. 485)security interest (p. 485)secured party (p. 485)secured party (p. 485)repossess (p. 486)repossess (p. 486)smart card (p. 490)smart card (p. 490)




The Meaning of Credit Types of Credit

Open-End CreditClosed-End Credit

Section OutlineSection Outline




Borrowing Money Truth in Lending Secured Loans





Credit Cards Smart CardsDisputed PurchasesLost or Stolen Credit CardsCredit Card Blocking





Pre-Learning Question Pre-Learning Question

What is credit?




CreditCredit is an arrangement through is an arrangement through which you may receive cash, goods, which you may receive cash, goods, or services now and pay for them in or services now and pay for them in the future. the future. The cost of using someone else’s The cost of using someone else’s money is called money is called interestinterest..

The Meaning of CreditThe Meaning of Credit




The party who sells the goods on The party who sells the goods on credit or lends the money is called credit or lends the money is called the the creditorcreditor..The party who buys the goods on The party who buys the goods on credit or borrows the money is credit or borrows the money is called the called the debtor.debtor.

The Meaning of CreditThe Meaning of Credit





What are the different types of credit?




There are two main kinds of credit. There are two main kinds of credit.

Types of Credit Types of Credit

Open-end creditOpen-end creditClosed-end creditClosed-end credit




Open-end creditOpen-end credit is credit that can be is credit that can be increased by the debtor by continuing increased by the debtor by continuing to purchase goods or services on to purchase goods or services on credit, up to a certain limit.credit, up to a certain limit.

Open-End Credit Open-End Credit




You are given a You are given a line of creditline of credit, or a , or a maximum amount of money made maximum amount of money made available to you. Charge accounts and available to you. Charge accounts and credit cards are some examples. credit cards are some examples.

Open-End Credit Open-End Credit




Closed-end creditClosed-end credit is credit given for is credit given for a specific amount of money and a specific amount of money and cannot be increased by making cannot be increased by making additional purchases. Buying a vehicle additional purchases. Buying a vehicle and making monthly installments is and making monthly installments is one example.one example.

Closed-End Credit Closed-End Credit





What should you know before you borrow money?




Research the questions you will be Research the questions you will be asked when you apply for a loan.asked when you apply for a loan.Shopping for a competitive interest Shopping for a competitive interest rate can save you a lot of money in rate can save you a lot of money in the long run.the long run.

Borrowing Money Borrowing Money




The Truth in Lending Act requires that The Truth in Lending Act requires that lenders tell you both the finance lenders tell you both the finance charge and the annual percentage charge and the annual percentage rate (APR) of the loan, so you can rate (APR) of the loan, so you can compare the cost of a loan from compare the cost of a loan from different lenders.different lenders.

Truth in Lending Truth in Lending




A A secured loansecured loan is one in which is one in which creditors obtain an interest in creditors obtain an interest in something of value, called something of value, called collateralcollateral, , from which they can secure payment if from which they can secure payment if you do not pay.you do not pay.

Secured LoansSecured Loans




The interest that is given to creditors The interest that is given to creditors is known as a is known as a security interestsecurity interest. .

The lender or seller who holds the The lender or seller who holds the security interest is known as the security interest is known as the secured partysecured party..

Secured LoansSecured Loans




If the debtor does not pay back the If the debtor does not pay back the loan, the secured party has the right to loan, the secured party has the right to repossessrepossess, or take back, the goods. , or take back, the goods.

RepossessionRepossession




Repossession must be done without Repossession must be done without breaching the peace. breaching the peace.

If the debtor refuses to surrender the If the debtor refuses to surrender the goods, legal process must be used to goods, legal process must be used to obtain them.obtain them.

RepossessionRepossession




Loans can also be secured by having Loans can also be secured by having a second person, called a cosigner or a second person, called a cosigner or surety, sign the contract, agreeing to surety, sign the contract, agreeing to pay the loan, if necessary.pay the loan, if necessary.

Cosignature Cosignature




Fill in the blanks.

1.1. The _____ is the party who sells The _____ is the party who sells goods on credit or lends money.goods on credit or lends money.




ANSWERANSWER

Creditor.




2.2. The _____ is the party who buys The _____ is the party who buys the goods on credit or borrows the goods on credit or borrows money.money.




ANSWERANSWER

Debtor.




3.3. _____ is credit that can be _____ is credit that can be increased by the debtor by increased by the debtor by continuing to purchase goods or continuing to purchase goods or services on credit, up to a certain services on credit, up to a certain limit.limit.




ANSWERANSWER

Open-end credit




4.4. _____ is credit given for a specific _____ is credit given for a specific amount of money. amount of money.




ANSWERANSWER

Closed-end credit





Do you know how to choose a credit card?




Credit cards have become an Credit cards have become an important part of our culture, and important part of our culture, and choosing the best one for you can choosing the best one for you can save you money.save you money.

Credit Cards Credit Cards




Total amount of U.S. credit card Total amount of U.S. credit card debt in 2001— $680 billiondebt in 2001— $680 billionNumber of different credit cards in Number of different credit cards in the average family—13the average family—13





Outstanding credit card debt of the Outstanding credit card debt of the average credit card holder—$8,000average credit card holder—$8,000Percent interest paid on that Percent interest paid on that outstanding debt—17 percent outstanding debt—17 percent





Here are five tips for choosing the Here are five tips for choosing the best card for you.best card for you.

Choosing a Credit Card Choosing a Credit Card

1.1. Department stores and gasoline Department stores and gasoline companies are good places to companies are good places to obtain your first credit card.obtain your first credit card.




2.2. Bank credit cards are offered Bank credit cards are offered through banks and savings and loan through banks and savings and loan associations. Annual fees and associations. Annual fees and finance charges vary widely, so finance charges vary widely, so shop around. Shopping around can shop around. Shopping around can save you a lot of money.save you a lot of money.





3.3. If you plan on paying off your If you plan on paying off your balance every month, look for a balance every month, look for a card that has a grace period and card that has a grace period and carries no annual fee or a low carries no annual fee or a low annual fee. annual fee.





3.3. (continued) You might have a (continued) You might have a higher interest rate, but you plan to higher interest rate, but you plan to pay little or no interest anyway.pay little or no interest anyway.





4.4. Watch out for creditors that offer low Watch out for creditors that offer low or no annual fees but instead or no annual fees but instead charge a transaction fee every time charge a transaction fee every time you use the card. Such charges can you use the card. Such charges can add up quickly. add up quickly.





5.5. If you plan to carry a balance, look If you plan to carry a balance, look for a card with a low monthly for a card with a low monthly finance charge. Be sure that you finance charge. Be sure that you understand how the finance charge understand how the finance charge is calculated is calculated





A A smart cardsmart card is a new kind of card is a new kind of card with a computer chip that can store a with a computer chip that can store a large amount of data. large amount of data.

Smart cards can hold debit and credit Smart cards can hold debit and credit card balances, identification card balances, identification information, and much more.information, and much more.

Smart Cards Smart Cards




If you have a dispute with a credit card If you have a dispute with a credit card purchase, you: purchase, you:

Disputed Purchases Disputed Purchases

do not pay the bill for the disputed do not pay the bill for the disputed item, butitem, butnotify the credit card issuer by notify the credit card issuer by telephone immediately telephone immediately




The card issuer: The card issuer:

Disputed Purchases Disputed Purchases

must put the disputed amount on must put the disputed amount on hold hold will send you a form to fill out will send you a form to fill out explaining the disputeexplaining the disputewill attempt to resolve the dispute will attempt to resolve the dispute will inform you of the results will inform you of the results




You are responsible for only $50 of You are responsible for only $50 of any unauthorized charges made any unauthorized charges made before you notify the credit card issuer before you notify the credit card issuer of the loss, theft, or unauthorized use of the loss, theft, or unauthorized use of your card.of your card.

Lost or Stolen Credit Cards Lost or Stolen Credit Cards




You are not responsible for any You are not responsible for any unauthorized charges made after the unauthorized charges made after the company has been notified.company has been notified.

Lost or Stolen Credit Cards Lost or Stolen Credit Cards




When you use a credit card to rent a When you use a credit card to rent a car or to check into a hotel, the clerk car or to check into a hotel, the clerk usually gives an estimated bill to the usually gives an estimated bill to the credit card issuer. credit card issuer.

Credit Card Blocking Credit Card Blocking




If the transaction is approved, your If the transaction is approved, your available credit is reduced by this available credit is reduced by this amount immediately. This procedure amount immediately. This procedure is called a block. It is used to make is called a block. It is used to make sure you don’t exceed your credit.sure you don’t exceed your credit.

Credit Card Blocking Credit Card Blocking




Reviewing What You Learned

1. What is the difference between open-end credit and closed-end credit? Give an example of each.

Section 22.1 Assessment





Open-end credit (credit cards) can be increased by the debtor, up to a limit set by the creditor, by continuing to purchase goods or services on credit.


Answer





Closed-end credit (car loan) is extended only for a specific amount of money.


Answer





2. What does the Truth-in-Lending Act require lenders to tell you?






The finance charge and the annual percentage rate of the loan.


Answer





3. Describe a secured loan.






One in which creditors obtain an interest in something of value, called collateral, from which they can be paid if you do not pay.


Answer





4. How much does the average credit card holder have in outstanding credit card debt? What is the average interest rate he or she is paying?






$8,000 in credit card debt; 17 percent.


Answer





Critical Thinking ActivityEconomicsReact to this statement: “America’s economic strength is in part due to the ability of people to borrow money and make purchases on credit.” Do you agree or disagree? Explain your answer.





Critical Thinking Activity AnswerEconomicsAnswers will vary but could discuss that credit enables consumers to buy expensive durable goods, such as appliances, which is good for the economy.





Critical Thinking Activity AnswerEconomicsAnswers can also discuss that too much credit creates too much consumer debt, which makes less money for investment, which is bad for the economy.





Legal Skills in ActionResponsible Use of Credit Many teenagers use credit cards—either their parents’ or their own. Some teenagers use credit cards for emergencies only; others use them for everyday purchases and activities.





Legal Skills in ActionResponsible Use of Credit With a partner, debate the role of credit in society today. Explain your philosophy on using credit. Describe how you think credit problems could be prevented.





Legal Skills in Action AnswerResponsible Use of Credit Debate and discussion will vary. Accept answers that are well reasoned.

What Is Credit? What Is Credit? End of Section 22.1End of Section 22.1

what is credit? section 22.1. understanding business and personal law what is credit? section 22.1...

Documents

credit legal terms credit

line of credit

end credit section

meaning of credit slide

credit borrowing money

credit card problems

different types of credit

credit protection laws