HDFS 357 1st Edition Lecture 8 Outline of Current Lecture I II III IV V What is consumer credit Advantages of Credit Disadvantages of Credit Closed Open Credit Credit Cards Current Lecture LECTURE 8 Chapter 6 Introduction to Consumer Credit What is consumer Credit Credit is an arrangement to receive cash goods or services now and pay for them in the future Consumer Credit is the use of credit for personal needs by individuals and families Advantages of Credit Current use of goods and services Permits purchase even when funds are low Easier to return merchandise Convenient when shopping One monthly payment for multiple purchases Safer than cash Needed for hotel car reservations and shopping online Can take advantage of float time grace period May get rebates airline miles or other bonuses Disadvantages of Credit Temptation to overspend Failure to repay loan has serious consequences Does not increase total purchasing power Credit costs money Closed Open Credit Closed End Credit o One time loans for a specific purpose that you pay back in a specified period of time and in payments of equal amounts Ex mortgage automobile and installment loans for furniture appliances and electronics Open End Credit o Use as needed until line of credit is reached o Line of credit the maximum dollar amount that can be charged on a specific credit card amount Credit cards department store cards bank credit cards incidental credit Credit Cards 8 out of 10 U S households carry one or more credit cards One third are convenience users pay balance in full each month Two thirds are borrowers carrying a balance over paying finance charges Co branding linking a credit card with a business offering rebates on products and services