credit – part 2 vocab, bankruptcy and laws. credit vocabulary
TRANSCRIPT
Credit – Part 2Vocab, Bankruptcy and Laws
Credit Vocabulary
Acceleration ClauseO Entire debt is immediately due if you
miss a single payment.
Annual FeesO Membership or participation fees.O Not all credit card companies charge
this.O Look for one that doesn’t charge a
fee.
Balance TransferO Moving an unpaid credit card debt
from one issuer to another.O Card issuers offer teaser rates to
encourage balance transfers.
Balloon PaymentO The final payment is much larger
than the regular payments.
CapitalO Dollar amountO What you ownO Should be more than what you owe
Charge CardO Requires payment in full every monthO Doesn't have a preset limitO Purchases get approved based on spending
and payment history, financial resources and credit record.
O There is no interest rate or minimum paymentO If the bill is not paid on time, late fees and
other penalties may ensueO Categorized as Open 30-day accountsO Example: American Express
CollateralO Personal property given to lender to
secure a loan.
Credit CardO Allowed to carry over portions of
your balance from month to month.O Interest is charged if balance is not
paid off.
PrincipalO Actual dollar amount of the
purchases madeO Is also the balance that remains on
your loan or credit card account or loan.
O Example: O When you charges $50 dollars, that is
the principal.O If you still owe $23,900 on your home,
that amount is the principal as well.
Prime RateO The interest rate that commercial
banks charge their most credit-worthy customers.
O Set by the Federal Reserve.O Important for retail customers,
directly affects the lending rates for mortgage, small business and personal loans
Secured LoanO Loan in which borrower pledges
collateral to assure repayment.O Item is seized if there is a default on
the loan.
Revolving CreditO Option of paying in full each month
or making partial payment,.O Categorized as Open Ended CreditO Examples: Credit Cards – Visa,
MasterCard, Discover, Best Buy, Victoria Secrets, etc…
Installment CreditO Used to pay for expensive itemsO Debt is divided into equal amounts
for repaymentO Item purchased serves as collateralO Categorized as Closed Ended credit
Installment Purchase Agreement
O Contract defining repayment of installment credit
O Includes:O PrincipalO Interest rateO Fees involvedO Repayment schedule
O Binding contract
APRO Annual Percentage RateO Cost of credit expressed as a YEARLY
rate.O Can change at any time by lender,
as long as consumer is notified in advance.
O Different APR rates charged for different services from cards.O Cash Advances have much higher
interest rate than regular purchases
Introductory or Teaser Rate
O Low rate for financingO Offered for a limited timeO Usually only applies to certain
aspects of credit—balance transfers or new purchases.
Co-SignerO Person who pledges to repay the
debt if the borrower fails to do so.
Rates…O Fixed APR: Rate doesn’t change for
the life of the loan.O Variable APR: changes over time
because of the prime lending rate.
Service CreditO Having a service performed and
paying for it later.O Example:
O Telephone/utilityO DoctorsO LawyersO Repair shops
Make No Payments for 3 years interest free….
O Agreement in which no payment has to made for period of time.
O No interest is accumulatedO Payments can be made, but not
requiredO Balance is due at end of time periodO If entire balance is not paid at due
date…O Loan is refigured from the beginning
with all interest added in.
Bankruptcy
BankruptcyO Legal process whereby you are
declared legally insolvent.O Having insufficient funds to repay you
debt.
Bankruptcy ProcedureO File with bankruptcy courtO Notice is given in newspaper – must be
public knowledgeO Creditors are notifiedO Creditors files claimsO Court may sell property as needed to
repayO In most cases, bankruptcy can be
claimed every 6 years.O Must go through debt counseling first
Classes of Bankruptcy
Chapter 11 BankruptcyO Existing management retains control
of businessO Main purpose is to reorganize the
business’ debt structureO Also known as Reorganization
Bankruptcy
Chapter 7 BankruptcyO Past the stage of reorganization and
must sell off any un-exempt assets to pay creditors
O Also known as liquidation bankruptcy
Chapter 13 BankruptcyO Allows creditors to get some of their
money backO Debtor keeps property and repays
debt over time.
Discharged DebtsO Debts set aside by the courtO Debtor no longer responsible for
payment of certain debtO Creditors can no longer seek
payment
Is All Debt Discharged??
O NO! Some debts still must be repaid.O Child supportO Alimony or maintenanceO Income taxes and penaltiesO Student loansO Court ordered damages
Causes of BankruptcyO Foolish/emotional spendingO Failure to budget and planO Business failureO ForeclosuresO Catastrophic injury or illnessO Natural disasters
Credit Laws
Fair Credit Reporting Act
O Gives individuals the right to examine their own credit history.
O Allows the consumer to find out:O If information in your file has been
used against you.O What is in your credit fileO What your credit score isO To dispute incomplete or incorrect
information.
Truth in Lending ActO Federal lawO Requires lenders to fully disclose the
terms and conditions of a mortgage.O APR must be told up front
Fair Credit Billing ActO Protects consumers from billing
errors or other unfair practices from credit card companies
Fair Debt Collection Practices Act
O Eliminate abusive practices in the collection of consumer debt.
O Includes:O Contacting third partiesO Threats O Calling at unpredictable timesO Using false claimsO Informing your employer
Equal Credit Opportunity Act
O Credit applications be considered on the basis of actual qualification for credit – the Three C’s
O Cannot be rejected because of:O AgeO GenderO Marital statusO Race, colorO ReligionO National originO Receive public incomeO Sexual orientation
Credit CARD Act
OCredit Accountability Responsibility Disclosure Act
O 2009O Credit Card ReformO Among other changes, it restricts
card issuance to students under age 21 must prove they have the means to repay, or must have a co-signer.