credit essentials
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Credit ESSENTIALS. Introduction to Business and Marketing – Ch 25.1. OBJECTIVES. Define credit Indicate three factors that affect interest paid Identify different groups who use credit Identify advantages and disadvantages of using credit. THE MAIN IDEA. - PowerPoint PPT PresentationTRANSCRIPT
CREDIT ESSENTIALSIntroduction to Business and Marketing – Ch 25.1
OBJECTIVES Define credit Indicate three factors that
affect interest paid Identify different groups who
use credit Identify advantages and
disadvantages of using credit
THE MAIN IDEA
Credit allows borrowers to purchase items that they otherwise could not afford.
Consumers, businesses, and governments all borrow money.
CREDIT: The Promise to Pay Consumers use credit to
buy goods and services now and pay for it later
Makes buying more convenient
Allows customers to buy things they might not otherwise be able to afford
CREDIT: an agreement to obtain money, goods, or services now in exchange for a promise to pay in the future
WHO’S INVOLVED…
A creditor charges a fee to a debtor for using their money, which is called interest.
INTEREST: a fee for borrowing money
DEBTOR: someone who borrows money or uses credit
CREDITOR: someone who lends money or provides credit
INTEREST
The amount of interest to be paid is based on three factors:1. The interest rate2. The length of the
loan3. The amount of the
loan
WHO USES CREDIT? Many people use credit To a great extent, credit has
replaced money as a means of making purchases.
Consumer Credit – credit used for personal reasons Home purchase (Mortgage) Car purchase Shopping Entertainment
WHO USES CREDIT Commercial Credit – credit
used by businesses Business use credit for similar
reasons as consumers Buy raw materials and machinery Buy factories or trucks
When businesses borrow money they often pass the cost on to consumers
WHO USES CREDIT The federal government uses
credit to pay for many of the services and programs it provides to its citizens.
State and local governments use credit to pay for Highways Public housing Water systems
ADVANTAGES OF USING CREDIT
Credit is convenient. You can shop and travel without carrying cash. You can buy items right away without saving. Credit is useful in an emergency. Credit can help you keep track of spending. Credit contributes to economic growth.
ADVANTAGES OF USING CREDIT Buying on credit
enables people to establish a credit rating
A good credit rating tells other lenders that you are a responsible borrower and a good credit risk
CREDIT RATING: a measure of a person’s ability and willingness to pay debts on time
DISADVANTAGES OF USING CREDIT
Credit can be easy to misuse Items cost more when you use credit Using credit means you have committed some
of your future income to your debt You cannot use credit after you reach your
credit limit Late or missed payments lower your credit
rating
FACTORS TO CONSIDER
Do you have the cash you need for the down payment?
Do you want to use your savings instead of credit?
Can you afford the item? Could you use the credit in some better way? Could you put off buying the item for a while? What are the costs of using credit?
FUN FACTS The average American
household carries a balance of $7,500 - $8,000
Women are more likely than men to carry a credit card balance
In 2010 American consumers paid an estimated$72 Billion more than they spent (interest)