FIN2100 Chapter 7: Choosing a Source of Credit: The Costs of Credit Alternatives

what are the major sources of consumer credit?

commercial banks, consumer Finance companies, credit unions, life insurance companies, savings and loan associations, pay day loan companies, online lenders

What are stafford loans?

education financing

what are some medium priced loans?

commercial banks, savings and loan associations, and credit unions

what are some expensive loans?

Finance companies, retailers, check cashiers, bank credit cards, tax refund loans

what is Truth in Lending Law?

the federal law that makes creditors declare real time annual percentage rate and finance charge

what is finance charge?

the total amount you use to pay your credit

what is APR?

annual percentage rate, which the percentage cost of credit every year, the true rate of interest

what are some conditions that reduce lender's risk?

variable interest rate, secured loan, up-front cash, and a shorter term

What is the formula for interest?

I = PRT, interest = principal amount × rate of interest × time

How does add-on interest work?

interest is calculated from principal amount, then added on, then this value is divided by # of payments needed to add up to principal

What is the adjusted balance method?

payments are subtracted before making charges

what is the previous balance method?

payments are not subtracted before making charges

what is the average daily balance method?

balances are added daily in the billing period, then is divided by the # of days in the period, then is multiplied by the monthly interest rate

what does the Credit CARD Act of 2009 ban?

the 2- cycle average daily balance method

what are tax considerations of paid interest?

interest paid on consumer interest is not tax deductible, but paid on home mortage is still deductible

What is the Minimum monthly payment trap, and why should you avoid it?

paying the least you need to, this will have you paying more interest for more time

What is the Rule of 78's ?

paying more interest in the beginning so you can pay less when the debt is reduced

What are 3 types of credit insurance?

credit life, credit accident and health, and credit property

what is the credit CARD act?

The credit card accountability, responsibility, and disclosure act of 2009

What does the credit CARD act do?

it limits increasing of APR in the 1st year

what does the Fair Debt Collection Practices Act do?

it regulates debt collection agencies and gives you a right to dispute a debt

what are 3 warning signs of debt problems?

emotional gratification, punishing with money, overindulging children

what is CCCS?

Consumer credit counseling services

What does CCCS do?

provides debt counseling for those in financial distress by aiding families and providing education

what are some alternative counseling services?

Uni's, credit unions, military bases, and ACCC

How many people declared bankrupt in the record- breaking year?

2 million in 2005

What does The Bankruptcy Abuse Prevention and Consumer Projection Act of 2005 require?

Executive Office must make a financial curriculum for debtors, debtors must complete a course, and District clerks of bankruptcy must have a list of credit counselors

what is Chapter 7 Bankruptcy?

A debtor makes a court petition to pay a filing fee, which is straight bankruptcy, and may keep some assets

What is chapter 13 Bankruptcy?

A voluntary plan that a debtor with steady income can show a bankruptcy court, known as a wage-Earner's plan

what are the costs of declaring Chapter 13 Bankruptcy?

court costs, attorney's fees, and trustees' fees and costs