Economics: Credit Concepts Flashcards

Credit

• Receiving money to purchase goods and services now, with a promise to repay in the future.

Interest

• Cost incurred by a borrower for using someone else's money.

Principal

• The original amount borrowed in a loan.

Installment Debt

• Loans repaid with equal payments over time.

Consumer Durables

• Manufactured items used for long periods before replacement.

Mortgage

• An installment debt secured by real property, like homes or land.

Commercial Bank

• Financial institutions that accept deposits, lend money, and facilitate fund transfers.

Savings and Loan Association

• Similar to commercial banks; accepts deposits and provides loans.

Savings Banks

• Primarily derive business from savings accounts and home loans.

Credit Union

• Member-owned organization providing savings accounts and low-interest loans to its members.

Finance Company

• Purchases installment debt contracts from stores, charging fees for debt collection.

Consumer Finance Company

• Offers loans directly to consumers with higher interest rates.

Charge Accounts

• Allow customers to buy from a specific company and defer payment.

Regular Charge Account

• Known as a 30-day charge with predetermined credit limits (e.g., $500 or $1000).

Credit Limit

• Maximum amount allowed for purchases made on credit.

Revolving Charge Account

• Enables additional purchases even if previous month's bill remains unpaid.

Installment Charge Account

• Permits items to be bought and paid for through equal payments over time.

Credit Card

• Enables purchases without the immediate need for cash.

Debit Card

• Facilitates cashless purchases by electronically transferring funds.

Finance Charge

• The cost of credit, presented in monetary terms.

Annual Percentage Rate (APR)

• Annualized cost of credit expressed as a percentage.

Credit Bureau

• A private entity conducting credit checks on individuals.

Credit Check

• An assessment revealing income, current debts, and credit repayment history.

Credit Rating

• An evaluation assessing the risk of lending money to an individual or business.

Collateral

• An asset purchased with loan funds, like a house or vehicle.

Secured Loan

• A loan supported by collateral that can be reclaimed if unpaid.

Unsecured Loan

• A loan provided based on the borrower's reputation, with no collateral.

Past-Due Notices

• Notifications alerting that a payment deadline has not been met.

Cosigner

• A person who agrees to join in signing a loan when the primary borrower lacks a strong credit rating.

Usury Law

• Legislation limiting the amount of interest that can be charged on loans.

Bankruptcy

• A legal process for individuals unable to repay excessive debts accumulated from multiple loans or credit usage.