CREDIT ESSENTIALS Introduction to Business and Marketing – Ch 25.1.
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Transcript of CREDIT ESSENTIALS Introduction to Business and Marketing – Ch 25.1.
CREDIT ESSENTIALSIntroduction to Business and Marketing – Ch 25.1
OBJECTIVES
Define credit
Indicate three factors that
affect interest paid
Identify different groups
who use credit
Identify advantages and
disadvantages of using
credit
THE MAIN IDEA
Credit allows borrowers
to purchase items that
they otherwise could
not afford.
Consumers, businesses,
and governments all
borrow money.
CREDIT: The Promise to Pay
Consumers use credit to
buy goods and services
now and pay for it later
Makes buying more
convenient
Allows customers to buy
things they might not
otherwise be able to
afford
CREDIT: an agreement to obtain money, goods, or services now in exchange for a promise to pay in the future
WHO’S INVOLVED…
A creditor charges a
fee to a debtor for
using their money,
which is called
interest.
INTEREST: a fee for borrowing money
DEBTOR: someone who borrows money or uses credit
CREDITOR: someone who lends money or provides credit
INTEREST
The amount of
interest to be paid is
based on three
factors:
1. The interest rate
2. The length of the
loan
3. The amount of the
loan
WHO USES CREDIT?
Many people use credit
To a great extent, credit has
replaced money as a means of
making purchases.
Consumer Credit – credit used
for personal reasons Home purchase (Mortgage) Car purchase Shopping Entertainment
WHO USES CREDIT
Commercial Credit – credit
used by businesses
Business use credit for similar
reasons as consumers
Buy raw materials and machinery
Buy factories or trucks
When businesses borrow money
they often pass the cost on to
consumers
WHO USES CREDIT
The federal government uses
credit to pay for many of the
services and programs it
provides to its citizens.
State and local governments
use credit to pay for
Highways
Public housing
Water systems
ADVANTAGES OF USING CREDIT
Credit is convenient.
You can shop and travel without carrying
cash.
You can buy items right away without saving.
Credit is useful in an emergency.
Credit can help you keep track of spending.
Credit contributes to economic growth.
ADVANTAGES OF USING CREDIT Buying on credit
enables people to
establish a credit rating
A good credit rating
tells other lenders that
you are a responsible
borrower and a good
credit risk
CREDIT RATING: a measure of a person’s ability and willingness to pay debts on time
DISADVANTAGES OF USING CREDIT
Credit can be easy to misuse
Items cost more when you use credit
Using credit means you have committed some
of your future income to your debt
You cannot use credit after you reach your
credit limit
Late or missed payments lower your credit
rating
FACTORS TO CONSIDER
Do you have the cash you need for the down
payment?
Do you want to use your savings instead of
credit?
Can you afford the item?
Could you use the credit in some better way?
Could you put off buying the item for a while?
What are the costs of using credit?
FUN FACTS
The average American
household carries a
balance of $7,500 - $8,000
Women are more likely
than men to carry a credit
card balance
In 2010 American
consumers paid an
estimated$72 Billion more
than they spent (interest)