TYPES OF CREDITIntroduction to Business and Marketing

OBJECTIVES

Identify the sources of credit

Understand the types of credit

THE MAIN IDEA There are many different types of credit plans

including

charge accounts

credit cards

single payment loans

installment loans

mortgage loans

Length of Loans

• One year or lessShort-term Loan

• 1-5 yearsMedium-term Loan

• More than 5 yearsLong-term Loan

Sources of Credit

Charge Accounts

Credit Cards

Banks and other

Financial Institutions

Seller Provided

Credit

Consumer Finance

Companies

Charge Accounts Credit provided by a store or

company for customers to

buy its products

Can usually only be used at

that store

Credit Cards Credit cards are like charge

accounts, but some can be used in

many different places.

Some credit cards have annual

fees, which can range from $25-

80.

Credit card companies earn

money from the interest they

charge and annual fees

Types of Credit Cards Single Purpose Cards - can be used to

buy goods or services only at the

business that issued the card

Multipurpose Cards - also called bank

credit cards because banks issue them

Can be used at many different businesses

Travel and Entertainment Cards –

holders must pay the full amount due

each month and pay an annual fee

Banks and Other Financial Institutions

Want to lend money to

people with good credit

ratings

Credit unions only lend

money to credit union

members and employees

Single-Payment Loan A debtor pays back a single-

payment loan in one payment,

including interest

Many farmers secure single-

payment loans in the spring

and pay back in fall

Installment Loan Loans repaid in regular payments

over a period of time

Examples

Student loans

Car loans

Home improvement loans

Mortgage Loan

Installment loan that lasts a long time

Usually 15-30 years

Used to purchase real estate (home)

Home serves as collateral

Seller-Provided Credit

Many stores provide credit for their

customers

Clothing, furniture, and appliance stores as

well as car dealerships are among those

that offer credit to customers.

Consumer Finance Companies

Specialize in loans to people who might

not be able to get credit elsewhere

These loans are more expensive

because the risk for the lender is high

Other Types of Loans

Payday advance

services offer short-

term loans until

payday

Payday advance

services charge high

fees and interest

Other Types of Loans

A pawnshop loan is based on the value

of something you own that is left with a

pawnbroker as security against money

borrowed

Items can be bought back later

Think about it!

Think about the following questions and

discuss them with your pod.

Formulate an answer and be prepared to

share your answer with the class.

Question 1

Do you think people who are responsible

and pay all their debts on time should

have the same interest rate as people

who are delinquent on payments?

Why or why not

Question 2

Do you think it is fair for payday loans

and car title loans to have higher

interest rates than regular bank loans?

Why or why not

Activity

Complete the chapter 25 Review and

Activities

Review Key Concepts 1-5

Critical Thinking 6-13

Be prepared to share answers with the class