CCFE- Credit Basics

what does credit availability depend on

whether lenders trust that you will pay back the loan as agreed

what is interest

price paid for borrowing money

what is principle

amount of money borrowed

what is a term

how long the loan is for

what is PMI and why do you use it

Primary Mortgage Insurance, if you don’t want a down payment (must pay 20% if using PMI)

one positive and negative of credit

+: effective tool

-: Create financial stress and negatively impact quality of life and financial well-being

what percent should the total amount borrowed of a loan be

20%

what percent should monthly loan payments be

10%

what is rule of 72

interest rate / 72 = how long it will take your money to double

what is closed end credit

loan in which you must repay in a specified number of EQUAL monthly payments

what is open end credit

line of credit est. in advances, can pay loan payments in a single or series of unequal or equal payments

examples of closed end credit

mortgage, car, personal, and education loans

examples of open end credit

credit cards

examples of alternative credit

payday loans, rent-to own, pawn loans, title loans, refund anticipation loans

what are characteristics of alternative credit

more interest, more fees, combines open and closed credit

positive and negative of leasing a car

+: new cars every few years, lower monthly payments

-: high fees and mileage limits

positive and negative of buying a car

+: fewer penalties, long-term savings

-: car depreciates, higher initial cost

what will a credit application require to see

personal info, amount requested, info regarding the ability to repay the loan, credit history check