Unit7:BorrowingMoney

PersonalFinancialLiteracy

Objec-ves

•  Iden-fywaystoestablishagoodcreditrecord.

•  Discusstheimportanceofreviewingcreditreports.

•  Determinehowandwheretogetaccuratecreditscores.

•  Formulateop-onsforfinancingavehicle.•  Discussfactorsthatinfluencethevehicleyouleaseorpurchase.

Objec-ves-Con-nued

•  Listtheadvantagesanddisadvantagesofleasinganautomobile.

Credit

•  Supplyofmoney,goods,orservicesinpresent-meinexchangeforpromiseoffuturepayment

•  Goodwaytoobtainthingsyouwantandneed•  Canleadtofinancialproblems

What’sonaLoanApplica-on?

•  Asksfor:– placeofemployment–  lengthofemployment– howmuchyouearn– assets– howlongyou’velivedatyourresidence– whatyou’repayingforhousing– financialaccountsandcreditreferences

CreditRecord

•  Borrowingandrepaymenthistory•  Howmuchyouowecreditors•  Historyoflatepayments•  Canstartasearlyasage16•  Onrecordupto7years(longer,ifyou’vedeclaredbankruptcy)

•  Sourcesofincome

CreditRecord

•  Typeofhouseyoulivein•  Anylegaljudgments•  AREN’Tallowedtoreveal:– Gender– Religion– Race– Age– Countryoforigin

HowtoEstablishCredit

•  Payu-litybillson-me•  Havesavingsandcheckingaccount

•  Makedepositsanddon’tbeoverdrawn

•  Applyforcreditcardorcreditcard

•  Makecreditcardpurchasesandpaythemoff

ManagingCreditRecord

•  Paybillsbeforetheyaredue•  Makemorethanminimumpayment•  Keepbalanceslow•  Don’toveruseorapplyfortoomanycreditcards

•  Makeregulardepositstosavingsaccounts

CreditReports

•  Equifax,Experian,andTransUnion•  Reviewannually•  Freereportfromeachcreditbureaueachyear

TheFourCs

•  Character•  Capacity•  Capital•  Collateral

FICO

•  Basedon:– Credithistory(35%ofscore)– Currentlevelofdebt(30%)– Lengthof-meusingcredit(15%)– Applyingfornewcredit(10%)– Typeofcreditused(10%)

FICO

•  Scoresrangefrom300to850•  Determineswhetheryouqualifyforloanandtheinterestrate

WheretoBorrow

•  Consumerfinancecompanies

•  Financialins-tu-ons•  Insurancecompanies•  Loansharks •  Pawnbrokers •  Paydayloans •  Privateloans

VehicleLoans

Consider:•  Interestrate•  Monthlypayments•  Lengthoftheloan•  Downpaymentortrade-in•  Balloonpaymentclauseoraccelera-onclause

ResearchingCarPurchase

•  ConsumerReports•  CarandDriver•  www.edmunds.com•  www.kbb.com•  Carfax

AAAAverageCostsPerMile

Deprecia-on

•  Newcarloses20%ofitsvalueimmediately.•  Mostofacar’sdeprecia-onoccursinthefirsttwoyears.

LeasingAdvantages

•  Lowermonthlypayments•  Candriveamoreexpensivecar•  Driveanewcarevery2to3years(tendstobemorereliable)

LeasingDisadvantages

•  Mileagelimit•  Moreexpensive•  Finesfordingsordents•  Neveractuallyownthecar

UnitReview

1.  Discusswhatcreditis,itsbenefits,andpoten-alproblems.

2.  Howdoesapersonbeginestablishingacreditrecord?

3.  Describewhatcanbedonetoestablishagoodcreditrecord.

4.  Namethethreemajorcreditbureaus.

UnitReview-Con-nued

5.  Whyisitimportanttoreviewcopiesofyourcreditrecord,andisthereanythingthatcanbedoneifacreditreporthaserroneousinforma-on?

6.  Describetherela-onshipofcreditbureauswithlendersandcreditors.

7.  DescribethefourC’sofcredit.

UnitReview-Con-nued

8.  Whatisthemostcommonlyusedcreditscore,andhowisitcompiled?

9.  Explaintherela-onshipofFICOscoresandinterestrates.

10.  Describeatypicalvehicleloan.11. Compareandcontrastthevarioussourcesof

loans.

UnitReview-Con-nued12.  Discussthefactorsthatshouldbeconsidered

whenshoppingforavehicleloan.13.  Wherecanyoufindimpar-alinforma-on

aboutmakesandmodelsofvehicles?14.  Discussinforma-onthatcanberesearched

whenshoppingforacar.15.  Howarenewvehiclesaffectedby

deprecia-on?

UnitReview-Con-nued

16.  Howdousedvehiclesaffectdeprecia-onandwhatareotherconsidera-onswhenpurchasingausedvehicle?

17.  Discusstheadvantagesanddisadvantagesofleasingavehicle.