Warm-Up Credit and Loans

Warm-Up Credit and Loans

?

Lesson

Question

Lesson Goals

Discover the different forms of

Explain your responsibility to pay back a loan with

.

Explore ways to build a

available to you as a consumer.

Learn how to use credit responsibly.

credit history.

W2K

Words to Know

Fill in this table as you work through the lesson. You may also use the glossary to help you.

principal

the

borrowed or the amount of a loan still unpaid

bankruptcy

an arrangement after financial business rearranges its finances

borrow

to obtain money by promising to

in which a it

credit score the

of how worthy a person is to receive loans

interest

a charge or

in exchange for borrowing money

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Warm-Up Credit and Loans

Credit Approval

Jane gets a letter in the mail from a credit card company. It says in bright letters, "YOU'RE APPROVED!" Jane is delighted as she opens the envelope and finds her first credit card inside. She decides that she is going to celebrate by going shopping.

Having a credit card means that you will be able to use it to

It does not mean that the item you buy will be

.

something.

Using Credit

When consumers use credit, they are taking on a

that must be repaid.

1. The consumer receives money to use immediately.

2. The consumer agrees to pay the debt back

.

3. The lender and the consumer agree on terms of

.

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Instruction Credit and Loans

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Credit Cards

Credit cards are issued by

.

? Cards can be used to make purchases.

? A

payment is required each month.

Personal Loans

Banks and financial organizations can issue many kinds of personal loans to consumers.

? One lump sum of money is issued to the

.

? The terms of

are agreed on up front.

Mortgage Loans

A mortgage is a loan that can be used to purchase a home or

.

? A bank lends a borrower money to make a purchase.

? The borrower agrees to make

payments to the bank

for a

period.

Auto Loans

An auto loan is similar to a mortgage loan.

? Banks loan money to consumers so they can buy

.

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Instruction Credit and Loans

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Secured and Unsecured Credit

Secured credit is backed by a valuable asset.

Unsecured credit is not backed by a valuable asset.

? A lender can take the

if

the loan is not paid back properly.

? This is

risky for lenders.

? A lender cannot take back any

unpaid.

if the loan is

? This is

risky for lenders.

7

Purchasing with Credit

When you borrow to make purchases:

? you commit to a repayment

? you are required to make

? you will be required to pay

. payments on time. .

Paying Interest

Total to be

=

+

borrowed

owed

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Instruction Credit and Loans

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Interest Rates

Interest is calculated based on interest rates, which:

? are usually calculated as a yearly owed.

? can be

or can

of the money based on the market.

Simple Interest

Simple interest is paid only on the

that has been borrowed.

? If I borrow $100--that is my principal--and I have an annual interest

rate of 10%, I will owe

, which is 10% of $100, in interest

each

until I pay the loan off.

Calculating Simple Interest

Formula for simple interest A = (P) (r) (t)

? A=

of interest accumulated

? P=

borrowed

? r = annual rate of

? t = number of

borrowed

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