Term
| A good percentage of net income to spend on credit payments |
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Definition
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Term
| Is there a difference between credit and debit cards? |
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Definition
Yes. With debit cards the amount is taken right out of your account. With credit cards you are loaning the money you are using from the bank. Credit cards are buy now pay later, debit cards are buy now pay now.
When you charge an item with your debit card, the money is taken directly from your checking account. Using a debit card essentially is the same as writing a check, so treat debit card charges the same way you would a check. Record the transaction and deduct it from your checkbook or checking account balance. |
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Term
| Is a credit card an example of closed or open-end credit? |
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Definition
| Open end. There is not a certain point in time where the entire balance of the credit card must be payed back. |
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Term
| Define closed-end credit. |
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Definition
one time loans that the borrower pays back in a specified period of time and in payments of equal amounts
ex: car loan |
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Term
| What is the greatest disadvantage of using credit? |
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Definition
| You can spend more than you actually have, you could be stuck in debt for years because of interest rates,and credit card fraud. |
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Term
| If credit is used effectively, can it help you have more and enjoy more? |
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Definition
| Yes. If you pay off your bills right away, you will not be wasting extra money. By paying off your credit card bill each month, interest will not be added and you will only be spending the actual amount of money, that the item you bought, cost. If you do not have the money right away to buy something, make sure to save up for when the bill will come. |
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Term
| What 2 types of people are most vulnerable to misusing credit? |
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Definition
| young adults and shopohalics |
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Term
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Definition
| The ability to obtain goods or services before payment, based on the trust that payment will be made in the future. Credit is known as buy now pay later. You do not pay for what you have charged until the monthly bill comes. |
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Term
| how far back does consumer credit date back to? |
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Definition
| Colonial Times. Originally a privilege of the affluent. Farmers also used it extensively. |
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Term
| Be able to calculate debt capacity. (20% of net income) |
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Definition
| A company with low debt coverage ratio and interest coverage ratios has a lower capacity for debt than companies with higher ratios. |
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Term
| Give an example of single-lump sum credit and closed-end credit. |
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Definition
Closed-end credit=car loan
Single-lump sum credit (must be repaid in total on a certain day.) usually within 30-90 days.
**Court ordered financial settlements |
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Term
| If you cosign a loan, what is expected of you? |
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Definition
| By cosigning a loan, you have equal responsibility of that loan. If the payments aren’t made on time, you as the cosigner must then make them to save your credit. |
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Term
| How do you calculate debt-to-equity ratio? |
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Definition
| total liabilities/net worth |
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Term
| What is the best way to maintain your credit rating? And if you do not, what areas of your life can it affect? |
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Definition
| Pay your bills on time, keep your credit card balances low, and manage your debt. It can affect many areas of your life. By not having a good credit score, you will not be able to get a loan on anything. This could cause you to not be able to get a house or a car or student loans. |
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Term
| How you pay your bills, is an example of which of the 5 C’s of credit? |
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Definition
| Character, because charter is if you pay your bills on time. |
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Term
| List the types of credit (loans) we talked about in the chapter. |
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Definition
Open: charge some, pay some down, pay it off. Balance changes often. (credit card)
Closed: pay down to zero. (student loan, car loan, house payment, motorcycle payment)
Single Lump Sum: People that use single lump sum are the people that cannot afford it. if you buy an 800 dollar laptop and don't have to pay it off for a year then you have that 800 dollars to pay off PLUS all the interest on that 800 dollars from the year of borrowing it. |
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Term
| What is the difference between Secured and Unsecured Credit? Give an example of each. |
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Definition
Secured credit cards require a cash deposit to the lender in order to secure the credit. The money is put into the credit account and the card holder may use all or some of the deposited money.
Unsecured credit cards are offered to individuals based on past lending history. No deposit is required and the lending limit on the card varies depending on credit reports.
Example: |
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Term
| List and explain the 5 C’s of Credit. |
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Definition
Character- Do you pay your bills on time.
Capacity- Do you have the ability to repay the loan.
Capital- What do you own.
Collateral- What do you have, of value, that you pledge to the lender that they can repossess if you fail to honor the terms of the agreement.
Conditions- Economic conditions that could affect your ability to pay. |
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Term
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Definition
| The 28-36% rule is where you take your GAI divide it by 12 to get your GMI, then you take your GMI and multiply it by both 28% and 36%. The 28% is the amount of money that you can spend on housing each month. The 36% is the amount of money you can spend a month on all debt INCLUDING HOUSING. |
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Term
| Define amortization. Be able to explain upside down in a loan. |
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Definition
Upside down in a loan: owe more than what your loan balance is in the bank
ex: totaling your car and your bank loan balance is 6500 and the insurance company only gives you 6000. you lost 500 dollars because you personally had to pay that extra 500 dollars. Also if you take out a loan for a very long time, the value of your car can decrease faster than your loan balance.
Amortization:The reduction of the value of an asset by prorating its cost over a period of years. |
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