When you use credit-- for the family

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Material Information

Title:
When you use credit-- for the family
Physical Description:
12 p. : ill. ; 20 x 27 cm.
Language:
English
Creator:
United States -- Division of Home Economics
Publisher:
Division of Home Economics, Federal Extension Service, U.S. Dept. of Agriculture :
For sale by the Supt. of Docs., U.S. G.P.O.
Place of Publication:
Washington, D.C.
Publication Date:

Subjects

Subjects / Keywords:
Consumer credit   ( lcsh )
Loans, Personal   ( lcsh )
Genre:
federal government publication   ( marcgt )
non-fiction   ( marcgt )

Notes

General Note:
Cover title.
General Note:
"January 1965."

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 029780977
oclc - 18909909
Classification:
lcc - HG3755 .U595 1965
System ID:
AA00025050:00001

Full Text




















.~ t4~~ -for the family










JANUARY 1965 *DIVISION O F HOME ECONOMICS* FEDERAL E XTENSION SERVICE -.r U. S. DE PA-CT 01 JTREC









When You Use CREDIT




When you do not have money for the things you want and need, you may saywe'll "charge it."
we'll "finance it."
we'11llbuy it "on time. we'll use a "payment plan."


This means you will use credit. To buy on credit means you buy now, pay later. You can use the goods while you pay. Usually you will pay every week or every month. Shop around before you decide what kind and how much credit to use. You need to know the kinds of credit and how much each costs. Credit can be dangerous if you use it wrongly. Use it carefully and wisely.

CONTENTS

Page
WXhen YouU se Credit ................2
Reasons For and Against Credit ... 3 Words Used In Disc'ussing Credit ... 3 hindei .tand Your Contract ...........4
Cn Yoiu Afford to I se Credit ....... Hjow Credit Costs Are Figured ..- 6 Ways of Stating Interest ............
Rinds of Credit .......... ........ 8
H ow's Your Credit Rating? ..........10 Un otect Ytour Credit Rating....... 12







Words Used

Reasons for and I 0
in Discussing Credit

Against Credit
Before you borrow money or sign a (1ilt contract. e sure you understand the words used. If you do not understand. ask for an explanation. Words used most often areBALANCE-the amount you still owe on an ace iunt at amN given time. BORROWER-the person who buN-s soething in time or borrows Cash COLLATERAL-the property put up to *'ecure" a loan. If the loan isn't paid. the lender may get the property. CONTRACT-usually a written agreement that saus hos m 0 sill pay CREDIT-buying things and paying later. or borrowing mne and paving later.

CREDIT CHARGE-is mainly interest but ine des other charges suih as cost of bookkeeping and investigation. Reasons "For" Reasons "Against" CREDIT RATE the percentage that the credit iharre bears to the
average principal amount.
CREDITOR OR LENDER-the person t re, firm, bank. credit uni In.
It's convenient. It's expensive. or other organization that lend in-c. or -01l things or sersic
You can use things while pay- You may overspend. "n time.
ing for them. You may not shop around as DEFAULT-failure to pay when due. \ i nrc to niet any terns of
You get better service. much. the contract.
It's handy in emergencies. It's hard to understand. INSTALLMENT-one of a series of p nt t a debt.

INTEREST- how much x ou paY to l b rm d mone PRINCIPAL-the amount 10o horn n ir f
REPOSSESSION---the seler take- baek 1 ,.i when the bu r fik t
meet Pa 1minnts.



3










Understand Your Contract













If you buy things "on time" or borrow money, you usually sign Never Sign a Blank Contract a paper called a contract. Contracts are legal documents. You Read and understand the contract. Take plenty of time. Know are I(~f) ] ,eq le for what you sig. what happens if you can't pay. Check the contract for each
amount, date, and other terms. Be sure they are filled in before you sign. Be sure to get a copy of what you sign. Look out for a Whn vou buy something "on time" you agree: contract with a final payment much larger than all the others.
to make payments to repay your debt.
you do not own what you bought until you make all pay- Make sure the contract states clearly:
,nents. purchase price, or amount borrowed
not to sell or move what you ve bought until you have interest and service charges in dollars
paid for it. down payment
to take care of any loss or da rage to it. trade-in allowance
if Vou fail to make pavnments, the creditor can take back insurance charges
what you've boughi. any other costs or service charges
total amount due
amount of each payment
number of payments
\ i \,)U borrow romoey \ oi ug re to repay the money. (late each payment is due.


4









Can You Afford to Use Credit?





Credit has become easier and easier to get. Merchants have found If you keep a spending plan. yo already x know what you haxe that it increases their business. People return to stores where they spent. This could guide you in planning for the future. can charge things. It's easy to buy more than you can pay for.
Now subtract the amount of money you plan to spend from the amount you expect to make.
Questions to Ask Yourself When YOU USE CREDIT* is having something now worth the extra cost? How much is left? This is the amount \on haxe for savings.
do you need it now? emergencies. and additional install ment pay nets.
what will you gain from it?
can you meet the payments? Your famil eeds to decide if the should
i i wrt lh ik our fanily* needs to decide if they should
is it worth the risk?
will it help you make more money? save the money and buy later, or
what will you give up while paying for it? use credit and buy the item now.
are you paying too much in interest and carrying charges? Your decision will depend on how badlx on ant and need tlis
are you dealing with a fair and honest lender? item.


TO DECIDE WHETHER TO BUY ON CREDIT: Use Credit W isely

Figure out how much money is coming in for a week, a month. a year. List the money you are sure will come in. Don't i cude overtime pay or money in short term jobs. \hen ou ise c redit, rememsbh
1. -\ake is large a downp~a\, ent a> po-ssi l. Your pax vt-m Add up all your expenses. List ever thing you can think of. Don't Nwill be l. skimp. Estimate high costs rather than Iow. Inclu de things such 2. Pay the alancc as quick u aM. a i sair niei. as food, clothing, housing, Federal and Stale taxes, and present 3. Your credit rating is xa nah I, rutet it. t' credit on tor installment payments. things you really want and eed.


5








How Credit Costs are Figured


The cost of credit depends on: HOW TO FIGURE CREDIT RATES
who you borrow from
If you are going to borrow money, or buy on credit, you need to
amount of mnonex- -you borrow
Amount of money o orro know how to figure the rate. Then you can compare the rates to
length of timie vou borrow it 0
Length of time o orrow it decide where to borrow. Interest and finance rates are stated
your ability to repaype
repay in many ways. This is confusing to most people.
risk the creditor takes
what collateral or security you can offer Following is a method to figure annual rates using the case above.
your reputation for paying bills
Charges made for credit are stated: Step 1. Multiply 2 times the dollar cost of credit ($40).
in dollars and cents 40 -/- -A
as a percentage rate
Step 2. Multiply this (80) by the number of payments in a

HOW TO FIGURE THE DOLLAR COST OF CREDIT year (12).
To figure the dollar cost of credit* add all costs Step 3. Multiply the amount of credit needed ($310 cost of item
less $35 down payment) -$275-by the total number
subtract the cash price of what you are buying or the less $35 down payment)-$275--by the total number
money you actually get from the lender. The difference of payments (18) plus 1. ] =
will be your dollar cost for using credit.
For example, yot buv an item that costs $310. You make a down ,
payment of $35. You agree to make 18 monthly payments of 17f5a. h Step 4. Divide the results in Step 2 (960) by the results in
Step 3 (5225). The answer is your true annual credit
Figuii re the dot lar cost1 as shown below: rate-18.37c%. 837- 8.7 7
monthly payments at $17.50 each ................ $31.5.00 o0
Add (wn payment at the time of purChae ........... ..35.00
Tot f! Cols of item ............................... $350.00 '" "

32,
S ira: ca sh rice of item ........................ 310.00 ... -_.
thow in ich it c(sts NoN to ise credit .................$ 40.00 /

6






Ways of Stating Interest



SIMPLE INTEREST Step 4. Figure the interest on $91.07 at 1 percent. Tis i 92
cents. The second month ou will pay 8.33 pu the Simple interest at 6 percent means you pay 6 cents on each dollar 92 c ents interest, which is a Iota of 9.. hee
for one year. It usually applies to a single payment loan payable is figured in this same va eer th
once a year. The loan and interest are paid at one time. Six percent interest on $100 for a year equals $6.00 interest.
MONTHLY INTEREST RATE
You may pay a part or all of the loan ahead of time. Then the Interest rates are often quoted at 11I t percent per nonth. interest you owe will be adjusted. You may pay the loan In one
interest you ~This sounds very cheap1. But remember thi i'00.i for one rioitlh.
lump sum in 6 months. Then your interest would be one-half of This sounds very cheap. But rei s ohe qute r oie th. $6.00 or $3.00. The true annual interest rate is the quote, rate anhiplied 1, 12.
$6.00 or $3.00.12 Interest at 11p2 percent a month would be 18 percent er ,car if the interest is paid at the end of each moth. INTEREST ON UNPAID BALANCE Interest of 31/ percent a n101th e unals 42 pf( Here you make payments on the amount borrowed. The size of the loan gets smaller. Interest is figured on the unpaid balance. ADD-ON INTEREST FOIl INSTALLMIENT HtYING This is the amount you actually owe at any given time. Here is how to figure interest at 1 percent per month on the unpaid Here the interest is added to the loan. 50.0) int rs: charge balance of a $100 loan to be paid in 12 monthly payments: would hbe added to the $100. making a total of $1 0.

You make 12 equal payments. This souud. like 0 percrt annuI interest rate. but 10u are leadily pa'inrg ol the principal loan, Step 1. Divide $100 by 12. This gives the amount you pay on You will owe ahout 850 at the end of ra orths. Iut 100 xwi, hc
the principal each month, which is $8.33. paYing inter on tire full $100 whe make \ onr atl wiell
payinintee- on the full S100 whn o make sour last ynn .of 88.87. The true annua[ intere.-t r~ne i- 1.00{ p,. n enlt. T'hiStep 2. Figure the interest on $100 at 1 percent. This is $1.00. f 8 T tr anl
The first month you will pay $8.33 plus interest, which way. 10 pay intntc on monel onae a h a Ira Ir J k.
is a total of $9.33. INTEIWST IN ADVANCE Oil DbO [
Step 3. Each month subtract '8.33 from the principal left at the Here the interest charge of SO oubh bI t11k I no 8 5I0. "1, u
end of the previous month, would get 91. The true anmal intretae ,- !7 .T, percmt.
For example: $100-88.33. $91.67 if the loan i paid in 12 eual mr o tll irrtt r ut1.


7






WHAT LOAN IS BEST FOR YOU?
You have learned to figure dollar cost and true annual interest rate. Compare the advantages and disadvantages of each type of loan.

You will want to consider things other than interest. Will there be hidden extras such as costs for late payments and credit life

Kinds of Credit isrne
Which should you choose? Your answer will depend upon your habits-how you handle money and how you plan to use it.


CHARGE ACCOUNTS


A~k Regular charge accounts are used to buy goods and services.
Stores let you buy and pay later. You may be asked to sign a sales slip each time you buy. Usually there is no charge for this kind of credit. With a regular charge account you are billed every 30 days. The bill is due then. There may be an interest or service charge if you do not pay in 30 days. This may be added to your original bill.


Stores with charge accounts may have higher prices to help cover the cost of this service. Some stores add a service or carrying charge to their charge accounts. Charge account regulations vary. Get all the facts about any particular one you plan to use.


________________Revolving charge accounts operate somewhat differently from regular charge accounts. You can charge only a limited amount. You and the store agree on the amount when you open the account. This limit is usually based on your income and credit rating. You pay a cet-taini amount each month. You are charged interest on the unpaid balance. The rate is usually I to l1/ 2 percent a month.






INSTALLMENT PLAN Credit nions lend money to their members. lntere-t s -tated as
a monthly rate on the unpaid bala e. Each credit union sets Usually installment buying is used to buy larger, more expensive its own rate. The not charg or tha peret mnth.
its own rate. Thev do not >t equipment and furnishings. Furniture, television sets, and wash- This would be a true annual interest rat 12 pcr cit. ing machines can be bought this way.

You sign a contract. You may make a down payment. Then Life Insurance Companies will make loan. to 1tih, ldr. You
can borrow uip to the cash value of votir poke. -Th( plwy -me you pay a set amount each week or month. The contract may be can borrow up to the cah value of or polic. The li e
as collateral. The interest rate is uuall tated in the nlicv. for a few months or several years. Finance and other special U llts t eret e in re d Iony
charges are added. You use the things while you pay for them. Usually it's 4 to 6 percent simple in T I r~~l insurance, you are reducing your protection.
You do not own them until all payments are made. insurance, you are reducing your protection.

Interest and other charges vary. Know exactly what you are pay- Personal Finance or Small Loan Complanies require les- collateral ing. Be sure you understand the terms of the contract you sign. than most other lending agencies. Interest rates and serve ice True rates are sometimes 15 to 20 percent. They can be even charges are usually higher because they make small loans and higher. take greater risks. The rate of interest companies can charge may
be limited by State law. Rates are stated as a monthly\ rate on the unpaid balance of the loan. Usual true intere rates range homn 12 to 42 percent per year.
CASH LOANS
Pawnshops charge very high rates. The annual rate could )e 24 to 120 percent or more. You must leaxc omethiing as
Banks may use a "discount," "interest on unpaid balance," or "add-on" method. Usually interest on a personal installment loan is charged on the full amount of the loan until it is repaid. Banks sometimes state their rates at $5 or $6 (9 to 11 percent) on $100 a year. With enough collateral or security you may be able to get .
a lower rate.


9

















Flow Y ourCredit is based on the lender's faith in the borrower's ability to


Use Credit Carefully and Wisely
It can be important to you and your family. A creditor wants to
Credit atingknow- er
Ing if you pay your bills on time
hte o have a steady income

He probably will telephone the local credit b~ureau. They will know if you pay your bills when due. Your credit record moves with you.


Application for Credit

You will fill out an application form. It will have such questions as:
*your full name, wife's or husband's name
*size of your family
*your address, how long you have lived there
*do you rent or own your home
*where you work and how long
*stores where you charge or buy on installment
*bank where you have savings or checking, account nriies of close personal friends and relatives. L enders want to know these things before you can get credit.


10

















These 6 C's Count for Credit



Character-a sincere attitude toward paying your bills. Capacity-ability to repay loan from money coming in. Capital-owning property or things worth more than your debt. Conditions-agreements made in advance between lender and
person borrowing.

Collateral-the possessions of any kind, which are set aside or
deposited as security for the debt. Common Sense-ability to use credit wisely.












11




UNIVERSITY OF FLORIDA


3 1262 09218 8748


Protect Your Credit Rating



9 Keep your promise to pay on time.

Let your creditors know if you can't pay-before the payment is due.

Explain why. Usually some other agreement can be made.





Remember,.



When You Use Credit


*make sure advantages outweigh the disadvantages
*follow the rules to have a good credit rating
*learn about the different kinds of credit
*shop for credit-get it at the lowest possible cost
*decide the best kind for your purpose
*understand the terms of any contract you sign.

U.S. GOVERNMENT PRINTING OFFICE :1965 0-760-071 For sale by the Superintendent of Documents, U.S. Governent Printing Office Washington, D.C., 2042 Price 10 cents 12