Chapter 2 CONSUMER CREDIT What is consumer credit

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Chapter 2 CONSUMER CREDIT

Chapter 2 CONSUMER CREDIT

What is consumer credit? credit extended to Consumer credit is a type of ______

What is consumer credit? credit extended to Consumer credit is a type of ______ Credit is anyand _____for purchasing consumer goods individuals arrangement by services. which one obtains money, goods or unsecured This kind of financing is usually _____. services now, and agrees to pay for It can also be defined as a non-mortgage them later. personal loan _______.

What is consumer credit? Consumer credit is popular among average consumers because: expensive items.

What is consumer credit? Consumer credit is popular among average consumers because: expensive items. ► It allows consumers to buy _____ ► Consumers do not need to carry a large amount of _____. cash

Types of consumer credit There are several common types of consumer credit in Hong

Types of consumer credit There are several common types of consumer credit in Hong Kong: ► Credit cards ► Overdrafts ► Lines of credit ► Instalment loans

Types of consumer credit Comparison of the common types of consumer cre Credit cards

Types of consumer credit Comparison of the common types of consumer cre Credit cards Overdrafts Lines of credit Instalment loans Nature of loan Consumers are allowed to borrow and repay money anytime within a pre-approved limit. Consumers have to repay both the loan principal and the interest with a fixed number of payments. Repayment schedule No limitation Fixed

Types of consumer credit Comparison of the common types of consumer cre Credit cards

Types of consumer credit Comparison of the common types of consumer cre Credit cards Advantages Overdrafts Lines of credit Instalment loans Repayment flexibility Convenient for making purchases Prevent a cheque from being dishonoured Convenient for borrowing money Safe Worldwide acceptance Provide short-term liquidity Interest is usually lower than that on credit cards and overdrafts Force the borrower to plan for the repayment Interest is usually lower than that on credit cards and overdrafts

Types of consumer credit Comparison of the common types of consumer cre Credit cards

Types of consumer credit Comparison of the common types of consumer cre Credit cards Overdrafts High interest rate Risk of credit card abuse Rejected by certain shops Can be a trap for creating debt if used improperly Disadvantages Instalment loans Lines of credit • Can be a trap for creating debt if used improperly • Lack repayment flexibility

Comparing and choosing among different types of consumer credit Consumer credit should only be

Comparing and choosing among different types of consumer credit Consumer credit should only be used to provide ______ convenience and _____ short-term liquidity. It should not be considered as a long-term or permanent source of personal financing. _____ When comparing and choosing among different types of consumer credit, several factors should be considered.

Comparing and choosing among different types of consumer credit The price of the item

Comparing and choosing among different types of consumer credit The price of the item to be purchased For small purchases, a _____ credit card is a better choice as it convenient is _____. When buying relatively expensive items, an instalment loan is more appropriate. _______ estimate in advance how ► It forces an individual to ____ much he can repay each month and how long it will take to pay back the loan. ► The loan can be _______ paid off within a reasonable period.

Comparing and choosing among different types of consumer credit The total costs of different

Comparing and choosing among different types of consumer credit The total costs of different plans Lenders may use different methods to calculate interest and often state their ______ interest rates in different ways. total interest payments Consumers should work out the __________ under different plans for comparison.

Comparing and choosing among different types of consumer credit The terms of the loans

Comparing and choosing among different types of consumer credit The terms of the loans Before choosing a type of consumer credit, one should early repayment also read the terms on restrictions on _______, charges and ____ penalties related to the loans. as well as _______ Some credit cards may charge different interest rates on outstanding balances different amounts of __________. estimate their average Consumers need to ____ outstanding balance to know the appropriate interest rates applicable to them.

Personal credit record A credit record (credit report) provides information on an repayment history,

Personal credit record A credit record (credit report) provides information on an repayment history, and whether individual’s credit and _____ bankruptcy he has filed for ______. Normally, a full credit report also includes a credit score which is a common way to express an ______, individual’s ________. creditworthiness

Personal credit record lenders in Credit records are commonly used by _______ determining an

Personal credit record lenders in Credit records are commonly used by _______ determining an applicant’s creditworthiness. Individuals can also check their credit report. This allows them to: accurate ► Ensure that the information about them is ____. identity theft or possible ► Check if there has been any ______ fraud credit _____.

Personal credit record Major factors affecting an individual’s credit record The major factors affecting

Personal credit record Major factors affecting an individual’s credit record The major factors affecting the credit record of an individual include: ► Repayment history (record of repayment) ► Credit history ► Outstanding debt ► Past delinquency ► Record of bankruptcy

Personal credit record Maintain a good personal credit record Importance of maintaining a good

Personal credit record Maintain a good personal credit record Importance of maintaining a good personal credit Maintaining a good personal credit record can help individuals obtain ______ credit more easily and possibly at higher / lower interest rates. A poor credit record may result in higher / lower interest rejection of a loan application. rates or ____

Personal credit record Maintain a good personal credit record How to maintain a good

Personal credit record Maintain a good personal credit record How to maintain a good personal credit record Plan for consumption: ► Individuals should understand how much they can ______ afford to consume. ► They should draw up some _____ guidelines on consumption (e. g. , when to use credit and when to use cash).

Personal credit record Maintain a good personal credit record How to maintain a good

Personal credit record Maintain a good personal credit record How to maintain a good personal credit record Review spending habits regularly: ► Individuals should distinguish between necessary and ______ unnecessary consumption. _____ ► They should check their _______ actual spending every month to make sure they do not overspend on things that are unnecessary.

Personal credit record Maintain a good personal credit record How to maintain a good

Personal credit record Maintain a good personal credit record How to maintain a good personal credit record Use consumer credit with discipline: Individuals should use consumer credit for convenience ______, but not for buying things that they cannot afford. Avoid a sudden increase in credit card applications: A sudden increase in credit card applications may cause lenders to suspect that the trouble individual isfinancial in ________.

Personal credit record Maintain a good personal credit record How to maintain a good

Personal credit record Maintain a good personal credit record How to maintain a good personal credit record Consider their repayment ability when applying for loans: ► Individuals should think about their ability to repay their debts before applying for credit cards or loans. ► They should not apply for credit cards or gifts loans just for the _____.

Personal credit record Maintain a good personal credit record How to maintain a good

Personal credit record Maintain a good personal credit record How to maintain a good personal credit record Pay all bills on time: Lenders do not care why people do not pay their bills. past____ due Any accounts will most likely lower a person’s credit score, resulting in a poor credit record.