chapter 16.2. open-ended credit an agreement to lend the borrower an amount up to a stated limit...
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Open 30 –day accounts Must pay full balance each month when bill is received Revolving Credit Consumer has option of paying in full or making payments at least as high as the stated minimum Most all-purpose credit cards like visa/Master Card and department store cards(Penny’s)TRANSCRIPT
Chapter 16.2
Open-ended credit – An agreement to lend the borrower an amount up to a stated limit and to allow borrowing up to that limit again, whenever the balance falls below the limit. Borrower is to repay amount borrowed within
30 days? (open 30 day accounts) Borrower is to repay amount borrowed over a
period of months or years?(revolving credit)
Open 30 –day accounts Must pay full
balance each month when bill is received
Revolving Credit Consumer has
option of paying in full or making payments at least as high as the stated minimum
Most all-purpose credit cards like visa/Master Card and department store cards(Penny’s)
OPEN-END CREDIT CLOSE-END CREDIT Loan is a reflection of
varying types of charges made by borrower
Allows continuous borrowing and varying repayment amounts
Example: Credit cards that allow continuous charging like “Visa”
Loan is for a specific amount and must be repaid in full by a stated due date
Repayments are fixed amounts(installments)
that include principal plus interest Example: Buying a
refrigerator using credit or buying a car
OPEN-ENDED CREDIT CLOSE-ENDED CREDIT No down payments
requiredSERVICE CREDIT Having a service done now and paying for it later Example: telephone and utility services which
usually offer budget plans resulting in lower monthly payments
Usually a down payment is required
The product purchased with loan becomes collateral for the loan
Often referred as an installment loan
Retail Stores (department stores, restaurants, and most service businesses)Often offer their own credit cards and also
accept the major credit cards. Often give discounts or incentives to use their own credit cardMajor Credit Card Companies(master card/visa)
Often has cash advance option and access checks
Banks and Credit Unions (offer credit cards and installment loans)
Two Types of small loan finance companies Consumer Finance Company Sales Finance Company
Usually charge higher interest rates for the use of their money. Why? They are willing to take higher risks that banks and credit unions are not willing to take
If someone is unable to get a loan at a bank or credit union, they can often get one at a small loan company.
Consumer Finance Company
Sales Finance Company
Makes mostly consumer loans to customers buying consumer durables (items expected to last several years…car,refigerator)
Makes loans through authorized representatives. For example, GMAC finances General Motors automobile dealers and their customers.
Beware of these lenders They are unlicensed They charge illegally high interest rate They just may break your legs if you
don’t pay the money back!
Legal lenders that make high-interest loans based on value of personal possession pledged as collateral
Loan amount is usually set at a value considerably less than the value of item pledged.
Some Pawn shops give only 10 to 25% of value of article pledged. Most give no more than 50%
to 60%.
Most common source of cash loans. Includes parents, other relatives, friends,
etc. May or may not charge interest.
LIFE INSURANCE POLICY CERTIFICATE OF DEPOSIT Policy holders can
borrow at low interest rates against the value of their policy
Loan does not have to be repaid
Amount of loan will reduce value of policy
Certificate used as collateral
Interest charged is usually only 2 to 5 % above the interest rate received oncertificate
Certificate retains full value