FINA200 Personal Finance ©
Lesson 5 Chapter 6 Assessing, Managing and Securing
Your Credit (LO 1 to 4)
Lesson/Chapter sections not subject to examination:
LO2. Focus on Ethics
LO3.
Focus on Ethics
Selecting the Car
Negotiating the Price
Exhibit 6.8
Quote:
“Too many people spend money they haven't earned, to buy things they don't want, to
impress people that they don't like.” ― Will Rogers, American vaudeville performer
Lesson Objectives
1. Provide a background on credit
2. Describe the role of credit bureaus
3. Explain the key characteristics of consumer credit products
4. Explain how to manage debt
LO 1: Provide a Background on Credit
Credit represents funds provided by a creditor to a borrower that the borrower will repay
with interest or fees in the future. Repayment of credit is segmented into principal
repayments and interest.
Credit can be classified as instalment or revolving.
Instalment loans:
Are loans provided for specific purchases, such as the purchase of a car.
The amount borrowed is repaid according to a repayment schedule that has equal
payments that are blended (i.e. each payment includes both principal and interest).
The timing and amount of each payment depend on the terms of the loan.
Revolving open-end credit:
Is credit provided up to a specified maximum amount based on income, debt level, and
credit history. Examples include credit cards and lines of credit. Interest is charged each
month on the outstanding balance.
© May not be copied or duplicated
without the permission of the owner. 1
, Consumers can pay the entire amount borrowed at any time and can reborrow the
amount repaid.
Typically, a minimum principal payment is due each month as well as the interest.
There are both advantages and disadvantages of using credit.
Exhibit 6.2 – Advantages and Disadvantages of Using Credit
Advantages Disadvantages
Allows you to achieve your goals sooner You may have difficulty making your
payments
Helps you establish a good credit history You may make impulse purchases that
and credit score you cannot afford
Eliminates the need for carrying cash You may damage you credit rating
Allows you to make purchases when cash There is an interest cost to using credit
is not an option
Provides additional benefits, such as air Large credit payments take away from
miles and travel insurance your ability to save
Provides short-term loans for You may need to access savings to cover
emergencies net cash flow deficiencies
Statements help you record and keep
track of past transactions
A favourable credit history is established by paying bills in a timely manner.
The credit application process involves:
Filling out the application and providing personal financial information such as a personal
balance sheet and cash flow statement, negotiating the interest rate, and negotiating the
loan contract.
The lender will usually conduct a credit check by consulting your credit report.
Credit Insurance represents a commitment by some insurers to cover credit card
repayments under various circumstances (e.g. accident and sickness, unemployment),
but the payment period is usually short term.
© May not be copied or duplicated
without the permission of the owner. 2
Lesson 5 Chapter 6 Assessing, Managing and Securing
Your Credit (LO 1 to 4)
Lesson/Chapter sections not subject to examination:
LO2. Focus on Ethics
LO3.
Focus on Ethics
Selecting the Car
Negotiating the Price
Exhibit 6.8
Quote:
“Too many people spend money they haven't earned, to buy things they don't want, to
impress people that they don't like.” ― Will Rogers, American vaudeville performer
Lesson Objectives
1. Provide a background on credit
2. Describe the role of credit bureaus
3. Explain the key characteristics of consumer credit products
4. Explain how to manage debt
LO 1: Provide a Background on Credit
Credit represents funds provided by a creditor to a borrower that the borrower will repay
with interest or fees in the future. Repayment of credit is segmented into principal
repayments and interest.
Credit can be classified as instalment or revolving.
Instalment loans:
Are loans provided for specific purchases, such as the purchase of a car.
The amount borrowed is repaid according to a repayment schedule that has equal
payments that are blended (i.e. each payment includes both principal and interest).
The timing and amount of each payment depend on the terms of the loan.
Revolving open-end credit:
Is credit provided up to a specified maximum amount based on income, debt level, and
credit history. Examples include credit cards and lines of credit. Interest is charged each
month on the outstanding balance.
© May not be copied or duplicated
without the permission of the owner. 1
, Consumers can pay the entire amount borrowed at any time and can reborrow the
amount repaid.
Typically, a minimum principal payment is due each month as well as the interest.
There are both advantages and disadvantages of using credit.
Exhibit 6.2 – Advantages and Disadvantages of Using Credit
Advantages Disadvantages
Allows you to achieve your goals sooner You may have difficulty making your
payments
Helps you establish a good credit history You may make impulse purchases that
and credit score you cannot afford
Eliminates the need for carrying cash You may damage you credit rating
Allows you to make purchases when cash There is an interest cost to using credit
is not an option
Provides additional benefits, such as air Large credit payments take away from
miles and travel insurance your ability to save
Provides short-term loans for You may need to access savings to cover
emergencies net cash flow deficiencies
Statements help you record and keep
track of past transactions
A favourable credit history is established by paying bills in a timely manner.
The credit application process involves:
Filling out the application and providing personal financial information such as a personal
balance sheet and cash flow statement, negotiating the interest rate, and negotiating the
loan contract.
The lender will usually conduct a credit check by consulting your credit report.
Credit Insurance represents a commitment by some insurers to cover credit card
repayments under various circumstances (e.g. accident and sickness, unemployment),
but the payment period is usually short term.
© May not be copied or duplicated
without the permission of the owner. 2
