Credit8.01

Evaluate various sources of credit available to the government, business, and consumers.

T008.01.01

G3

Who uses Credit?

Consumer Credit Credit used by people for personal

reasons. Commercial Credit

Credit used by businesses.

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G4

Types of Credit

Charge Accounts – most common type of short- term or medium-term credit. Regular Charge Accounts

Require that you pay for purchases in full within a certain period of time.

Revolving Charge Accounts Allows you to borrow or charge up to a certain amount of

money (credit limit) and pay back a part or the entire balance each month.

Budget Charge Accounts Allows you to pay for costly items in equal payments spread

out over a period of time.

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G5

Credit CardsSingle-Purpose

Can only be used to buy goods or services at the business that issued the card.

Examples: JC Penney, Sears

Multipurpose Similar to a revolving charge account. May be used at several locations. Examples: Visa and Master Card

Travel and Entertainment Similar to regular charge accounts. Must be paid in full each month. Example: American Express

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G6

Banks and Other Financial Institutions Single Payment Loan

Debtor pays off loan in one payment. Promissory Note

Written promise to repay with interest.

Installment Loan Repaid in regular payments.

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G7

Installment LoansTypes:

Student, mortgage, automobile, etc.

Secured vs. Unsecured Secured loans are backed by collateral (help guarantee the repayment of

a loan).

Closed vs. Open Ended Closed-end credit is used for a specific purpose and involves a definite

amount of money. Open-end credit gives you a certain limit on the amount of money you can

borrow.

Cosigner Responsible for the repayment of a loan if the original party does not pay.

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G8

Seller-Provided Credit

Many stores provide credit to customers.

Same as Supplier Credit – used by companies for supplies purchased on a regular basis.

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G9

Consumer Finance Companies

Specialize in loans to people with poor credit ratings.

The cost of credit is higher than other institutions.

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G10

Payroll Advance Services

Short-term loans. Pawnshop

Based on the value of something you own. “Borrow Until Payday” Loan

Cost is extremely high.

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G11

Bonds

Bonds – written promise to repay a loan with interest on a specific date. The buyer of the bond is considered the creditor.

Corporate Bonds Usually used to finance buildings and equipment.

Municipal Bonds State and local governments use these to finance

projects.

Savings Bonds Sold by federal government.

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G12

Other Sources of Credit for Businesses Small Business Administration

Offers a number of financial, technical, and management programs to help businesses.

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G13

Other Sources of Credit for Consumers

Life Insurance Plans Cash Value Insurance

Provides both savings and death benefits.

Retirement Plans

T008.01.12

G14