Term
| Compare the common types of consumer credit, including credit cards and installment loans |
|
Definition
1. Installment credit (Closed end credit) borrower must repaythe amount owed plusinterest in a certian time.
2. Nonistallment credit - single payment, open ended credit, and service credit. (REVOLVING CREDIT) extended in advance of the loan need. (Credit cards) |
|
|
Term
| What are examples of open ended credit? |
|
Definition
Credit Cards
Cash Advances
Personal Line of credit
Home-equity Line of Credit (when home is collateral)
Service credit - given to consumers by physicians, dentists, anytime full payment isn't required at time of service but is expected in the future. |
|
|
Term
|
Definition
Bank Credit Cards
Cobranded credit cards (bank with Visa)
Prestige Card - gold silver platinum designation - usually user has higher credit scores
Affinity Cards - Bank cards with a sponsoring logo on them
Retail Credit Card Accounts - ex. JCPENNY
Travel and Entertainment Cards (T&E) - entire bal. must be repaid within 30 days - example is American Express. |
|
|
Term
| Credit Card Gimicks/aspects |
|
Definition
Teaser Rates - temp low APR
Default Rates - intro APR is rescinded and the regular rate is applied if borrower misses payment (defaults)
Variable Interest rates - go up/down
Preapproved Crdit Card Offers
Annual and Transaction Fees (bal transfers)
Liability for loast or stolen cards (notify within 2 days to avoid liability)
Late-payment, bounced check, and over the limit fees
Crdit card insurance |
|
|
Term
|
Definition
| Collateralized credit card, is back by a savings account opened at the ifnancial instiution that issues the card. Usually credit limit coincides with the savings account amount. Savings cannot be withdrawn over the amount in credit used. |
|
|
Term
|
Definition
Periodic Rate - APR for a account div. by billing cycles in a year (usually 12)
Average Daily Balance - sum of the outstinding balance owed each day during th billing period div by the # of days in teh period. |
|
|
Term
| Periodic Rate Caluclation |
|
Definition
| 18% APR and 1.5% periodic rate ave daily bal of $1,000 would have finance charge forthe month of $15 ($1,000 X 0.015). |
|
|
Term
| FCRA (Fair Credit Reporting Act) |
|
Definition
| helps people who wish to dispute billing errors on revolving credit accounts. In effect permitting a CHARGEBACK, the amount of the transaction is charged back to the business where the transaction originated. Only permitted when mathematical erros have been presented. |
|
|
Term
| Goods and services disupte |
|
Definition
| Asserts that the charges wer for faulty, damaged, shoddy, defective, or poor-quality goods and services and you made a good-faith effort to try to correct the problem with the merchant. |
|
|
Term
|
Definition
| notices that make insistent demands for replayment |
|
|
Term
| Describe the important features of consumer installment loans. |
|
Definition
| Installment loans can be unsecured (based on credit score) or secured (cosignor or collateral). Each loan is individual from each other, and would have to be applied for sepeartely. |
|
|
Term
|
Definition
| Legal rightto seize and dispose of (usually sell) property to obtain payment of a claim. |
|
|
Term
|
Definition
| Part of a credit contract stating that after a specidifc number of payments are unpaid (often just one), thre loan is considered in default and all remaining installments are due and payable upon demand ofthe creditor. |
|
|
Term
| Purchase Loan Installment Contracts |
|
Definition
Installment Purchase Agreements - title passes to buyer
Conditional sales contracts (financing leases) - title does not pass to the buyer until the last installment paymet has been made. |
|
|
Term
| Calculating Interest on Consumer Loans |
|
Definition
|
|
Term
|
Definition
I=PRT
Interest = Prinicipal*Rate of interest*Time of loan in years |
|
|
Term
|
Definition
| Special charge assesed to the borrower for paying off a loan early |
|
|
Term
| Fule of 78s method/sum of the digits method for calculating perpayment penalties |
|
Definition
| Common method of calculating the prepayment penalty on a loan which uses the add-on method for calculating interest. Page 212 |
|
|
Term
| Discount method of calculating interest |
|
Definition
| Interest is calculated based on discount rate mult by the amt barrowed an dby number of years to repay. Interest is then subtracted from the amount of the loan and thedifference is given to the borrower. IN this method, interest is paid up front befre any part of the paymetn is applied toward the principal. |
|
|
