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CHAPTER:6 INTRODUCTION TO CONSUMER CREDITINTRODUCTION TO CONSUMER CREDIT CREDIT: Its an arrangement to receive cash, goods or services now and pay for them in future.

CONSUMER CREDIT: Use of credit for personalneeds(except home) by an individual and families.Every consumer having three alternatives in currentpurchases-Use the savingsUtilize current earningsBorrow against the future income.

- Trade off related with each alternative and having negative impact on financial condition and can lead to financial crisis. - Consumer credit depends upon the peoples ability and willingness to pay.Increasing level of credit in Economy-

Basically the young generation has added to the growth ofconsumer credit. Without consideration of debit limit theyuses the credit over electronic appliances, clothing,furniture, automobiles.

Uses and misuses of credit-

Using credit may make a consumer more efficient or giveenjoyable life. There can be some valid reasons to usecredits like basic need or education purposes. Using credit increases the amt of money a person can spend on purchases today against the trade off of decreasing future income.

Things to be considered before purchase on credit-Having down payment Using savingsFit into the Budget Unavoidable NeedOpportunity cost of avoiding purchase. Advantages Of Credit:

Enables a person to enjoy goods and services.Credit card provides shopping convenience and efficiency of paying several purchases in one monthly payment.Credit is more than substitute for cash.Safer to use credit card when u shop or travel.By using credit card holder will be given grace period till the due date of billing.Many shopping malls also issue their credit card so daily purchase becomes easy.

Disadvantages Of Credit

Temptation to overspend, especially during period of inflation but the over spending can lead to serious problem.Failure to repay a loan may result in loss of income and good reputation.Long term financial problem damage personal relationsDecrease the future incomeDelay in payment would increase amt with interest.How to Protect Yourself From Identity Theft:

Provide private identity numbers only when necessary.Remove your name from junk mail, telemarketing lists.Protect yourself by shredding old credit slips, account statements, and credit offers you receive in the mail.

TYPES OF CREDIT CLOSE ENDED CREDIT: One time loan that the borrower pays back in a specified period of time and in payment of equal amounts. Eg. home loan, automobile loan Three types-Installment sales credit:Installment cash credit:Single lump sum credit:

OPEN ENDED CREDIT: A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment. Eg. credit card use in different stores Credit cards: Many banks offering credit cards with grace period available to customers.Cash advances on credit card: This charges higher interest rates Cobranding: Eg star bazaar hsbc CobrandingDebit cards: ATM cards used for withdrawal and for purchases

Protection Against Debit/Credit Card FraudMeasures-Sign immediatestore them at secure placeDont give no on phone linesDont write no's anywhereRemember to get card receipts after transactionIf billing incorrect than inquireIf dont receive billing statement notify complainimmediately

As internet is widely used for investing, banking, shoppingthe incidence of cyber theft has been increase, So-Use secured browser software that encrypts the purchase informationKeep records of your online transactionReview monthly bank and credit card statementRead policies of web sites you visit.Keep personal information privateNever share passwordShop at businesses you know and trust.Dont download files sent by strangers.

Travel and entertainment card T&E cards are not really credit card because Monthly balance due in full

Home equity loan This base only difference between the current market value and amount still you owe

Measuring your credit capacityDepending on the budget take decision about loan andCredits

CAN YOU AFFORD A LOAN-By proper assessment of budget plan decide of credits.If the installment is less than saving then a person canafford it.

GENRAL RULE OF CREDIT CAPACITY-Debt payment to income ratio = Monthly debt payment monthly incomeDebt should not be more than 15% of income. *Not including house payment which is a long-term liability

Debt to equity ratio= liability net worthSo based on financial obligation and income take decision. Cosigning A loan: Co signing means taking an extra responsibility of debt of another person. You are being asked to guarantee the debt, so consider if you can afford it if the borrower defaults.

Co signer often pay- if person taken credit and fails to repay then co signer comes under the liability of repaying debt.

Before cosign take into consideration-You can afford to repay the loanEven if you dont ask to pay loan but this would beconsidered as liabilityIf borrower defaults you may lose the property.BUILDING AND MAINTAINING CREDIT RATING Whenever a person takes a loan its major consideration for creditors also. Quality of credit rating depends on the person. CREDIT BUREAUS: CIBIL(Credit Information bureaus (India) limited) Its first credit information bureau of India and software developed by the transunion, largest Consumer credit bureau of the world and CIBILs technical partner. Working since 2001. Who provides data to credit bureaus- all the bank and financial institutes as per the RBI notification provides data to CIBIL.Credit file is maintained for every person and CIR( credit information report) is created.Rating is given for credit.To obtain credit report some fees need to be paid and for specific purpose only a person can get his credit information.APPLYING FOR CREDITECOA(Equal credit opportunity act)Creditor cant discriminate on basis of race, age, gender,marital status and other factors for credit dealing.

Fair Credit Reporting Act

Five CsCharacter: borrowers attitude towards credit obligationCapacity: financial ability of a borrower to meet financial obligation Capital: the net worth of assets of the borrowerCollateral: a valuable asset that is pledged to ensure loan paymentConditions: general economic condition that affect the ability to repay the loan.

Age: ECOA very specific about the age.Housing loans: taken into consideration if any forgranting other credit. Based on these factors credit isgiven to applicant.AVOIDING AND CORRECTING CREDIT MISTAKESometimes a person find the transaction in credit cardbills that he had not done. So better to have regularpayment of the bills and if any snag occurs then complainto creditors.

BILLING ERROR: charge for something that is notauthorize to you and many times the bill amt has beenwrongly debited or you have been debited for thetransaction that you had cancelled.In case of billing error- Notify the creditor by call andthen in writing. Write all the information needed. Till thetime pay rest of the amount i.e. undisputed amt.if the mistake is from creditor side then no financialcharges or interest will be levied. If no mistake is fromcreditor then creditor will send the explanation and alsodebit the charges.

DEFECTIVE GOODS OR SERVICES: any defectiveitem u have got then ask merchant to replace or if notsolved then complain to forum and get the thing replaced.

IDENTITY CRISIS: recently many cases have beenoccurred. The information has been used and transactiontake place but the person not even have knowledge of thistheft and get to know when statement receive. check fromdata has been used- whether from personal computer,office system, any bank account if chq has been issuedthen stop payment if card stolen get it blocked. eg.icici bank

COMPLAINING ABOUT CONSUMER CREDITCOMPLAINS ABOUT BANKS: RBIPROTECTION UNDER CONSUMER CREDIT LAWSTruth in lending actEqual credit opportunity actFair credit billing actFair credit reporting actTruth In Lending Rights The Truth In Lending Act requires creditors to provide you with accurate and complete credit costs and terms.

Provides specific cost disclosure requirements for the APR and total finance charges.Regulates disclosure of other terms and conditions.Regulates advertising of credit terms.