Ch 7 & 8 Review
Thursday, April 9, 2026 3:12 PM
Chapter 7 Summary: Sources and Costs of Consumer Credit
Types of Loans
• Loans vary by cost (interest rates).
○ Inexpensive loans
□ Borrowing from family or friends (can affect relationships)
□ Loans backed by financial assets like Certificates of Deposit
□ Federal financial aid (FAFSA) for education
Medium-priced loan
• From banks or credit unions
• Credit unions advantages:
○ More personalized service
○ May help members with financial problems
○ Offer similar services as banks
- Expensive loans
• Finance companies
• Retail credit
• Credit cards (8–20% interest)
- Very expensive example:
• Tax refund loans can have APRs as high as 774%
- Cost of Credit
○ Truth in Lending Act (1969)
§ Requires lenders to clearly show:
□ Total borrowing cost
□ Interest rates
□ Finance charges
- Finance Charge
○ Total dollar cost of borrowing including
§ Interest
§ Service charges
§ Insurance
§ Fees
- Annual Percentage Rate (APR)
§ Yearly percentage cost of credit
§ Best way to compare loans
- Loan Trade-offs
○ Factors affecting loan cost:
○ Loan
§ Longer term → lower monthly payment but more interest overall
○ Interest type
§ Fixed rate = stable payments
• Variable rate = interest can change
- Collateral
• Secured loans use assets (house, car) to get lower rates
- Down payments
• Larger down payment can reduce loan costs
Interest Calculations
- Simple Interest
• Interest only on the principal amount
- Declining Balance Interest
• Interest calculated on the remaining balance after payments
- Add-On Interest
• Interest added to the principal upfront, making the loan more expensive
Credit Card Billing Methods
- Credit card companies calculate interest using:
• Adjusted balance method
• Previous balance method
• Average daily balance method
Credit Card Act of 2009
- Consumer protections include:
• Limits APR increases during first year
• 45-day notice before rate increases
• Monthly statement must arrive 21 days before due date
• Minimum teaser rate must last 6 months
• Under 21 requires co-signer or proof of income
Debt Problems
- Warning signs include:
• Impulse buying
• Trying to keep up with others
• Overspending on children
• Poor communication in families about money
Consequences:
• Family conflict
• Health problems
• Job loss
• Bankruptcy
Debt Help
- Consumer Credit Counseling Services (CCCS)
• Nonprofit organizations
• Help create budgets and debt repayment plans
• Provide financial education
Bankruptcy
• Liquidation bankruptcy
• Assets may be sold to pay debts
• Wage earner repayment plan
• Debts paid over 3–5 years
Bankruptcy Reform Act (2005)
• Made filing harder
• Requires financial education
• 8-year waiting period between filings
Student Loans
- Major types
• Stafford Loans
§ Federal student loans
§ Subsidized or unsubsidized
• Perkins Loans
§ For students with exceptional financial need
§ Low interest
• PLUS Loans
§ Borrowed by parents or graduate students
- Private Loans
• Higher interest rates
• Based on credit
Loan Repayment Plans
- Examples include:
• Standard repayment (10 years)
• Graduated repayment
• Extended repayment (up to 25 years)
• Income-based repayment
• Pay-As-You-Earn (PAYE)
Chapter 8 Summary: Consumer Buying Activities
Smart Purchasing Strategies
- Good buying decisions involve:
• Timing purchases
• Comparing brands
• Comparing prices
• Checking labels and warranties
• Choosing the right purchase location
- Goal
• Spend wisely
• Avoid too much credit
• Build financial security
Comparison Shopping
- Comparison shopping means evaluating:
• Different stores
• Different brands
• Prices and quality
Impulse Buying
- Impulse buying = unplanned purchases
- Psychological causes include:
• Buying to improve mood
• Feeling pressure to buy
• Emotional spending
Avoiding Impulse Purchases
- Timing purchases
• Buy items in the off-season
• Shop after holidays for discounts
- Watch economic factors
• Weather can affect food prices
• Wars or political issues can raise prices (gas, goods)
Purchase Location
- Where you shop matters
• Retail stores
• Online stores
• Cooperatives (nonprofit buying groups that reduce costs)
Thursday, April 9, 2026 3:12 PM
Chapter 7 Summary: Sources and Costs of Consumer Credit
Types of Loans
• Loans vary by cost (interest rates).
○ Inexpensive loans
□ Borrowing from family or friends (can affect relationships)
□ Loans backed by financial assets like Certificates of Deposit
□ Federal financial aid (FAFSA) for education
Medium-priced loan
• From banks or credit unions
• Credit unions advantages:
○ More personalized service
○ May help members with financial problems
○ Offer similar services as banks
- Expensive loans
• Finance companies
• Retail credit
• Credit cards (8–20% interest)
- Very expensive example:
• Tax refund loans can have APRs as high as 774%
- Cost of Credit
○ Truth in Lending Act (1969)
§ Requires lenders to clearly show:
□ Total borrowing cost
□ Interest rates
□ Finance charges
- Finance Charge
○ Total dollar cost of borrowing including
§ Interest
§ Service charges
§ Insurance
§ Fees
- Annual Percentage Rate (APR)
§ Yearly percentage cost of credit
§ Best way to compare loans
- Loan Trade-offs
○ Factors affecting loan cost:
○ Loan
§ Longer term → lower monthly payment but more interest overall
○ Interest type
§ Fixed rate = stable payments
• Variable rate = interest can change
- Collateral
• Secured loans use assets (house, car) to get lower rates
- Down payments
• Larger down payment can reduce loan costs
Interest Calculations
- Simple Interest
• Interest only on the principal amount
- Declining Balance Interest
• Interest calculated on the remaining balance after payments
- Add-On Interest
• Interest added to the principal upfront, making the loan more expensive
Credit Card Billing Methods
- Credit card companies calculate interest using:
• Adjusted balance method
• Previous balance method
• Average daily balance method
Credit Card Act of 2009
- Consumer protections include:
• Limits APR increases during first year
• 45-day notice before rate increases
• Monthly statement must arrive 21 days before due date
• Minimum teaser rate must last 6 months
• Under 21 requires co-signer or proof of income
Debt Problems
- Warning signs include:
• Impulse buying
• Trying to keep up with others
• Overspending on children
• Poor communication in families about money
Consequences:
• Family conflict
• Health problems
• Job loss
• Bankruptcy
Debt Help
- Consumer Credit Counseling Services (CCCS)
• Nonprofit organizations
• Help create budgets and debt repayment plans
• Provide financial education
Bankruptcy
• Liquidation bankruptcy
• Assets may be sold to pay debts
• Wage earner repayment plan
• Debts paid over 3–5 years
Bankruptcy Reform Act (2005)
• Made filing harder
• Requires financial education
• 8-year waiting period between filings
Student Loans
- Major types
• Stafford Loans
§ Federal student loans
§ Subsidized or unsubsidized
• Perkins Loans
§ For students with exceptional financial need
§ Low interest
• PLUS Loans
§ Borrowed by parents or graduate students
- Private Loans
• Higher interest rates
• Based on credit
Loan Repayment Plans
- Examples include:
• Standard repayment (10 years)
• Graduated repayment
• Extended repayment (up to 25 years)
• Income-based repayment
• Pay-As-You-Earn (PAYE)
Chapter 8 Summary: Consumer Buying Activities
Smart Purchasing Strategies
- Good buying decisions involve:
• Timing purchases
• Comparing brands
• Comparing prices
• Checking labels and warranties
• Choosing the right purchase location
- Goal
• Spend wisely
• Avoid too much credit
• Build financial security
Comparison Shopping
- Comparison shopping means evaluating:
• Different stores
• Different brands
• Prices and quality
Impulse Buying
- Impulse buying = unplanned purchases
- Psychological causes include:
• Buying to improve mood
• Feeling pressure to buy
• Emotional spending
Avoiding Impulse Purchases
- Timing purchases
• Buy items in the off-season
• Shop after holidays for discounts
- Watch economic factors
• Weather can affect food prices
• Wars or political issues can raise prices (gas, goods)
Purchase Location
- Where you shop matters
• Retail stores
• Online stores
• Cooperatives (nonprofit buying groups that reduce costs)
