Copyright 2007 Thomson South-Western

Chapter 8

Paying for Credit

Slide 2

Manual Payments

• Cash

• Personal checks

• Money orders

• Bank checks– Cashier’s check– Certified check

8-1 Payment Methods

Cash

Advantages •cash is accepted everywhere for payments. •The receipt serves as proof of payment and is another advantage to this payment method

Disadvantages •carrying large amounts of cash can be unsafe.

– You may be robbed, or– you may lose the money.

•Another disadvantage is that the cash must be delivered in person.

Slide 3

Personal Check

Advantages •Checks are easy and inexpensive to use. Mailing checks are relatively safe.•Cancelled checks or bank statements showing checks that have been processed provide proof of payment.

Disadvantage •Checks can get lost or delayed in the mail. •If the check does not reach the creditor before the due date, you may be charged a late fee.

Slide 4

Money Order

is a type of check that directs payment of a sum of cash to a payee (a person or company).

Advantage •is that it is prepaid. The payee is guaranteed payment because this type of check cannot bounce.

• A money order can also be sent safely by mail.

Disadvantage •is that getting one can be inconvenient.

• you may have to stand in line and pay for the money order using cash.

• you may be able to pay by personal check.

•pay a fee for the money order.

Slide 5

Cashier’s Check

• A cashier’s check is drawn on bank funds.

Slide 6

Certified Check• is a personal check for which payment

is guaranteed by the bank on which it is drawn.

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Slide 8

Electronic Payments

• Online and telephone payments

• Online banking

• Automatic payments

• Wire transfers

8-1 Payment Methods

Slide 9

Electronic Payments

8-1 Payment Methods

Users can enter bank account information to set up online payments.

Slide 10

Prepayment Penalty

• A fee charged when you repay a loan before the agreed-upon time

8-1 Payment Methods

INSTALLMENT PAYMENT PLAN

Terms: $10,000, 5-year loan, at 8% interest, with a 60-day interest penalty for early repayment

Initial Balance $10,000.00

Monthly Payment $202.76

Current Loan Balance (at payoff after 1 year)

$8,305.60

60-Day Interest Penalty $110.74

Balance to Be Paid $8,416.34

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Types of Loans

• Installment loans

• Personal loans

• Secured loans– Car loans– Mortgages– Amortization

8-2 Consumer Loans

Many people who buy houses finance the purchase with a mortgage loan.

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Types of Loans

• Student loans– Debt used to finance education costs – Available from the U.S. government and private

lenders

8-2 Consumer Loans

Information about student loans is available online.

Source: U.S. Department of Education, Federal Student Aid, http://www.ed.gov/offices/OSFAP/DirectLoan/index.html (accessed June 5, 2006).

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Lease/Rent-to-Own

• The renter uses and pays rent on an item• After a set number of payments, the renter

owns the item• Advantages

– Low or no down payment– Try before you buy

• Disadvantages– Total price is much higher than simply buying– No payments are refunded if the item is returned

8-2 Consumer Loans

Slide 14

Focus on...

Unused Credit • Unused credit represents potential for

debt

• Having some credit available is useful

• A large amount of unused credit may reduce your chances of getting a loan

8-2 Consumer Loans

Slide 15

Success Skills

Building a Positive Reputation • Reputation means the opinion others have of

you• People may form opinions about you based

on your reputation

• Your reputation may affect whether you can get good recommendations from former teachers or employers

8-2 Consumer Loans

Slide 16

Using Credit Wisely

• Consider the economy– Growing economy– Slowing economy

• Study credit offers– Interest rates– Grace period– Method of computing interest– Fees

8-3 Credit Tips

Slide 17

Reduce and Avoid Costs

• Keep the number of credit cards and accounts you have to a minimum

• Comparison-shop when getting a loan• Consider financing and special deals

arranged by the seller • Use credit to take advantage of sale prices• Time your purchases with the credit billing

cycle • Look for cash rebates and rewards

8-3 Credit Tips

Slide 18

Technology Corner

Applying for a Loan Online • Applications for loans are submitted

online

• Answers are received quickly

• Deal only with lenders you know

• Read the contract before signing

8-3 Credit Tips

Slide 19

Ethics

Unethical Loan Practices • Are often used to take advantage of

people with poor credit ratings

• Examples– Loan sharks – Advance-fee loan scams– Equity stripping

8-3 Credit Tips