Credit CardsPlastic Money!

90% of credit card purchases are impulse purchases!

Only 54% of card owners pay off their balances each month!

Credit Cards

Charge Cards◦ No pre-set spending limit◦ Must be paid in full each month

American Express

Credit Cards◦ Pre-set spending limit◦ Allow you to carry a balance

As long as you pay the minimum monthly payment◦ VISA, Mastercard

Types of Cards

Rates vary on different cards◦ Range from 15% - 25% annually◦ Interest charged daily

Daily rate = annual rate divided by 365

Charged on all balances after due date◦ Interest is backdated to the date of purchase

Credit Cards - Interest

Interest is charged on cash advances immediately◦ No grace period, interest accumulates

immediately

Credit Cards - Interest

Be careful calculating the number of days late…◦ Example

A Purchase made on December 3rd – not paid until January 5th.

◦ How many days in December didn’t you have it? 2 Days in December = 31 -2 = 29

◦ How many days in January did you have it? 5 Total = 29 + 5 = 34 days

Credit Cards – Days Late

Example◦ Monica makes a $400 purchase on her VISA on

January 5th. ◦ She receives her statement on the 20th, but

does not pay it.◦ Her next statement arrives on February 20th. ◦ Calculate the interest she is charged if her

annual interest rate is 21%.

Credit Cards

AssignmentModule 3 Lesson 4

Installment BuyingAll for 3 easy payments of…

Pay for a portion of the purchase now

Remaining balance owing is divided into equal payments.

Installment Buying

Installment Price◦ Sum of the down payment and all installment

payments

◦ This price is usually higher than the cash selling price.

Finance or Carrying Charges◦ The difference between the installment price

and the cash selling price

Installment Buying

Example◦ A new washing machine has a cash selling price

of $889.45 plus taxes.◦ The store offers an installment plan for $150

down and $90/month for 12 months. ◦ Calculate the cash selling price of the washing

machine. ◦ Calculate the installment price of the washing

price.

Installment Buying

Installment BuyingAssignment

Module 3 Lesson 2

Deferred Payment Plans

No interest, no payments….

Most often offered by furniture, electronics and appliance companies

Payment is delayed on actual cost, but other fees must be paid up-front.

◦ Taxes, delivery charges

Deferred Payment Plans

Administration Fees◦ Amount the company charges for the work

involved in administering the deferred payment plan.

Interest◦ Not charged if the balance is paid in full on or

before the due date.

Deferred Payment Plans

Amy wants to purchase a sofa. She can either pay for the sofa up front for $924.25 (plus tax) or she can use the stores payment plan.

◦ At the time of purchase she must pay the taxes, and a delivery charge of $25.

◦ If she selects the payment plan, she has one year interest fee, but must pay a $49.99 administration fee at the time of purchase.

◦ Compare the two purchase prices.

Deferred Payment Plans

AssignmentModule 3 Lesson 3

Personal Loans

Allow you to borrow a specified sum of money and repay it over time◦ Usually 1 – 5 years

To qualify you must◦ Be 18 years of age◦ Have the 3 C’s required

Character, Capacity, Capital

Personal Loans

Amortization Period◦ The amount of time it will take to repay the loan

Term◦ The period of time where the loan conditions

stay the same Not necessarily the same as amortization

Cost of Borrowing◦ The amount of total interest paid over the

amortization of the loan.

Personal Loan Terminology

Prime Lending Rate◦ Referred to as “Prime”◦ Baseline rate used by all financial institutions, set by the

Bank of Canada

Fixed Rate Loans◦ Interest rates stay the same for the entire term,

regardless of changes to prime.

Variable Rate Loans◦ Interest is charged in relation to Prime. ◦ Ie. Prime + 1%◦ If Prime changes, so does the interest charged

Interest

Our Calculations

We will focus on fixed rate loans.

Table provides monthly payment per $1000 borrowed.◦ Multiply this value by # of 1000’s

Example◦ $3000 at 4.5% for 3 years◦ $29.80 x 3 = $89.40

Jesse needs a personal loan of $10,000. His bank offers him a three year loan at a fixed rate of 10.25%.

Calculate the:◦ Monthly payment◦ Cost of borrowing (total interest paid)

Example

AssignmentModule 3 Lesson 5

Quiz after next class!