CREDIT

3.1→ INTRO TO CREDIT

The three components of details of a loan→ the principal, interest rate, and loan term.

Why secured loans are considered less risky to the lender→ lenders take valuable collateral if you fail to repay your loan.

Things that will decrease your interest rate→ having a good credit score, making a larger downpayment, and finding a cosigner with good credit.

Variable rate loans→ typically start with a lower interest rate than a fixed rate loan, is riskier to the borrower because the interest rate could increase substantially, can increase of decrease the interest rate over the course of the loan.

Net worth→ the total value of your assets minus your total liabilities.

What represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront→ principal

Examples of installment loans→ home mortgage, auto loan, student loans.

3.2→ YOUNG PEOPE AND CREDIT

Debit card details→ uses money you have in your bank account, can withdraw money from an ATM, charges overdraft fees, limited fraud protection, doesn’t build credit.

Credit card details→ uses borrowed money, high interest rates, earns rewards, good fraud protection.

Prepaid card details→ doesn’t help build credit, high fees, conviences.

Which factors directly impact your total cost of using the credit card→ annual fees, interest rates, penalties and late fees, billing cycle, length of grace period.

Schumur box description→ a standardized way of presenting the key terms of your credit card agreement.

3.4→ USING CREDIT WISELY

Outstanding balance→ the amount you owe after you’ve made your most recent payment

Why only paying the minimum balance is not benefiting you→ the majority of your minimum payment is going towards interest, therefore it will take you longer to pay off your principal

3.7→ LOAN FUNDAMENTALS

Two components of a fully authorized payment→ the principal and the interest

What happens as months progress on an amortized loan→ the payments stay the same, but the principal is paid down more slowly

Buy Now Pay later projected amount by 2030→ $10 billion

How businesses make profit from by now pay later→ business owners pay a fee on each transaction

What happens if you fail to make your loan payments on time→ you will be charged a late fee and it can hurt your credit

What happens to the interest portion over time→ the interest portion will shrink

3.9→ AUTO LOANS

Difference between leasing and owning→ leasing a car is making monthly payments to use a car for a fixed period of time, but then you return it without owning it

First step in purchasing a vehicle→ create a budget and check your credit score

Reasons someone might choose a higher monthly payment option→ to pay off the vehicle faster, pay less interest, and pay off the loan quicker

Calculation for determining the amount of the loan principal→ total cost of what you are buying minus the money you already have saved

What is the benefit of having a good credit score before taking out a loan→ it will reduce the interest rate

3.11→ MORTGAGES

APR→ annual percentage rate

How APR for mortgages differ from a traditional interest rate→ because it does not just include interest. It also inculdes costs such as taxes, applicable fees, taxes, insurance, and penalties.

Importance of choosing the right mortgage loan→ interest rates, mortgages are a large commitment