Bài giảng Pfin4 - Chapter 6: Using Credit

PFIN4Using Credit6GITMAN/ JOEHNK/ BILLINGSLEYCopyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.1 Describe the reasons for using consumer credit and identify its benefits and problems2 Develop a plan to establish a strong credit history3 Distinguish among the different forms of open account credit4 Apply for, obtain, and manage open forms of creditLEARNING OUTCOMESPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 Choose the right credit cards and recognize their advantages and disadvantages 6 Avoid credit problems, protect yourself against credit card fraud, and understand the personal bankruptcy process LEARNING OUTCOMES (continued)PFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Basic Concepts of CreditWhy we use creditAvoid paying cash for large outlaysMeet a financial emergency ConvenienceInvestment purposesImproper uses of creditMeet basic living expensesMake impulse purchasesPurchase non-durable goodsPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Credit Crisis on BorrowersHouseholds were unable to repay the mortgagesMonthly consumer credit payments (excluding mortgage) should not exceed 20% of monthly net incomeDebt Safety Ratio =Monthly consumer credit paymentsMonthly take-home payPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Establishing CreditOpen checking and savings accountsBuild a strong credit historyInform the lender if there is a delay in paymentLimit your usage to your abilities to repayPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Exhibit 6.2Credit Guidelines Based on Ability to RepayPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Credit Cards and Other Open Account CreditCredit extended to consumer prior to a purchaseConsumer can buy up to a specified credit limitOffered by retailers and financial institutionsMonthly credit statementsPay balance in full to avoid interestPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Bank Credit CardsPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Special Types of Bank Credit CardsPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Retail and Debit CardsRetail cards Issued by department stores and oil companies Preset credit limitsDebit cardsWorks like writing a check by accessing checking accountGreater liability exposure if fraudulently usedPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Forms Of Revolving CreditOverdraft protection linesUnsecured personal credit linesAvailable on as-needed basisHome equity credit linesSecured by equity in owner’s homeInterest tax deductible (if deductions are itemized)PFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Opening an AccountCredit applicationAvailable at the bankPersonal and professional information Credit investigationEvaluates the creditworthiness of the borrowerCredit bureauCost-effective way of verifying employment and credit historyPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Computing Finance ChargesAnnual percentage rate (APR)True rate of interest over life of loanIncludes all fees and costs Method used in computing finance chargesADB excluding new purchases - Consumer friendlyADB including new purchases - Take the outstanding balance, including new purchases, and subtract payments and creditsPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Avoiding Credit ProblemsUse discipline when purchasingReduce number of cards Be selective in accepting preapproved credit Limit new chargesPay more than the minimumPay off cards with highest finance charges firstTransfer balances to card with lowest ratePFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Credit Card FraudDon’t give account number to organizations who call you Use secure internet sites Never put credit card information on checks Destroy old cards and shred old statementsReport lost or stolen cards immediatelyPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Bankruptcy – Paying the Price for Credit AbusePersonal bankruptcy: Petition for request for protection from creditorsWage earner plan: Debt restructuringStraight bankruptcy: Wipe the slate clean and starting anewPFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Debt safety ratioOpen account creditCredit limitBank credit cardLine of creditCash advanceBase rateGrace periodReward credit cardAffinity cardsSecured cardsStudent credit cardKEY TERMSRetail charge cardDebit cardRevolving line of credit Overdraft protection lineUnsecured personal credit lineHome equity credit lineCredit investigationCredit bureauAnnual percentage rateAverage daily balancePFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.SUMMARYConsumer credit plays a major role in the personal financial planning processDifferent forms of credit are used for the sake of convenienceCredit cards and other forms of credit need to be used wisely Understanding the advantages and disadvantages of credit cards are very important PFI4 | CH6Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.