Financial Planning Chapter 5
Credit - answerAn arrangement to receive cash, goods, or services now and pay for
them in the future.
Consumer Credit - answer the use of credit for personal needs (except a home
mortgage)
3 ways consumers can finance current purchases - answertake money from savings,
use present earnings, borrow against expected future income.
Advantages of consumer credit - answer-Enjoy goods and services now and pay later (a
car, a home, and an education)
-convenient when shopping
-Safer to use credit since you can travel and shop without carrying large amount of cash
-Can take advantage of a 30 day float period
-May get rebates (airline miles, emergency medical insurance, or other bonuses)
-Demonstrates financial stability
Disadvantages of Credit - answer-Temptation to overspend
-Failure to repay loan may lead to loss of income
-Misuse of credit can create serious long-term financial problems, damage to family
relationships, and a slowing of progress toward financial goals
-It does not increase total purchasing power
-Credit costs money
Types of Credit - answer-Consumer loan
-Revolving credit
Consumer loans - answerOne time loan the borrower pays back in a specified period of
time with a determined payment schedule.
Revolving credit - answerA line of credit in which loans are made on a continuous basis
and the borrower is billed periodically for at least partial payment
Consumer loans examples - answer-Home mortgages
-Automobile loans
-Demand loans
-Other instalment loans
Revolving credit examples - answer-Credit cards issued by banks
-Charge cards or travel and entertainment cards
-Lines of credit
Credit - answerAn arrangement to receive cash, goods, or services now and pay for
them in the future.
Consumer Credit - answer the use of credit for personal needs (except a home
mortgage)
3 ways consumers can finance current purchases - answertake money from savings,
use present earnings, borrow against expected future income.
Advantages of consumer credit - answer-Enjoy goods and services now and pay later (a
car, a home, and an education)
-convenient when shopping
-Safer to use credit since you can travel and shop without carrying large amount of cash
-Can take advantage of a 30 day float period
-May get rebates (airline miles, emergency medical insurance, or other bonuses)
-Demonstrates financial stability
Disadvantages of Credit - answer-Temptation to overspend
-Failure to repay loan may lead to loss of income
-Misuse of credit can create serious long-term financial problems, damage to family
relationships, and a slowing of progress toward financial goals
-It does not increase total purchasing power
-Credit costs money
Types of Credit - answer-Consumer loan
-Revolving credit
Consumer loans - answerOne time loan the borrower pays back in a specified period of
time with a determined payment schedule.
Revolving credit - answerA line of credit in which loans are made on a continuous basis
and the borrower is billed periodically for at least partial payment
Consumer loans examples - answer-Home mortgages
-Automobile loans
-Demand loans
-Other instalment loans
Revolving credit examples - answer-Credit cards issued by banks
-Charge cards or travel and entertainment cards
-Lines of credit
