offer an opportunity to withdraw money without penalty. However, you will likely be required to maintain a minimum balance in the account.
purchased at a deep discount (a small portion of the face value) with no interest payments.
start with higher rates and usually have long maturities, as high as 10 to 15 years.
2.Savings and Loan Associations (S&L)
3.Mutual Savings Banks
1.Life Insurance Companies
2.Investment Companies(Money Market Funds)
5.Credit Card Companies
A savings-investment plan offered by investment companies, with earnings based on investments in various short-terms financial instruments.
function by making loans to consumers and small businesses with short and intermediate terms with higher rates than most other lenders charge.
The percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period.
One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts.
Calculating the Cost of Credit
Simple Interest- Interest= Principal X Rate of Interest X Time (I=P X r XT)
Compound Interest- Total future repayment value of loan (principal plus total accumulated or compound interest)= Principal (1 + Rate of interest per year or annual interest rate) adjusted to Time in years (F= P(1 + r)T
signing for another person’s debt which involves a legal obligation made by the cosigner to make payment on the other person’s debt should that person default. Having a cosigner is way for individuals with a low income or poor/limited credit history to obtain financing.
contains your name, address, Social Security number, and birthday.
May also include:
-Your Employer, position, and income.
-Your former address.
-Your former Employer.
-Your spouse’s name, Social Security number, employer, and income.
-Whether you own your home, rent, or board.
-Checks returned for insufficient funds.
May also contain detailed credit information.
Complaining about Consumer Credit
Attempt to resolve issue directly with creditor.
Get advice and help from the Federal Reserve System
Take legal action against creditor under consumer credit laws:
Truth In Lending and Consumer Leasing Acts
Creditor fails to disclose information required under the Law
Gives inaccurate information
Does not comply with the rules regarding credit cards or the right to cancel them.
You may sue for actual damages (any money loss you suffer)
Class actions suits are also permitted.
Equal Credit Opportunity Act
Creditor has discriminated against you for any reason prohibited by the ECOA
You may sue for actual damages plus punitive damages of up to $10,000
Fair Credit Billing Act
Creditor fails to comply with the rules applying to the correction of billing errors automatically forfeits amount owed and any finance charges on it, up to a combined total of $50.
You may sue for actual damages plus up to double the finance charges.
Fair Credit Reporting Act
Credit reporting agency or creditor violates the rules regarding access to your credit records and corrections of error in your credit file.
You may sue for actual damages plus punitive damages the court allows if the violations is proven to have been intentional.
Consumer Credit Reporting Reform Act of 1997
Place burden of proof for accurate credit information on the credit reporting agency rather than on you.
Creditor must certify that disputed data is accurate.
If the creditor or the credit bureau verifies incorrect data, you can sue for damages.
The federal government and state attorneys general can also sue creditors for civil damages.
Credit Card Accountability, Responsibility, And Disclosure Act of 2009
Provides the most sweeping changes in credit card protections for you since the Truth in Lending Act of 1968
Place new restrictions on credit card lending and eliminates certain fees.
The Five C’s of Credit
Character- The borrower’s attitude toward his or her credit obligations.
Capacity- The borrower’s financial ability to meet credit obligations.
Capital- The borrower’s assets or net worth.
Collateral- a valuable asset that is pledged to ensure loan payments.
Conditions- The general economic conditions that can affect a borrower’s ability to repay a loan.
How to Improve Your Credit Score
Get copies of your credit report and verify that the information is correct
Pay your bills on time
Understand how your credit score is determined
Do you pay your bills on time?
What is your outstanding debt?
How long is your credit history?
Have you applied for new credit recently?
How many and what types of credit accounts do you have?
Learn the legal steps to take to improve your credit report
Beware of credit-repair scams
Types of Loans
Loans from family, parents or money borrowed on financial assets held by a lending institution (a bank certificate of deposit or the cash value of a whole life insurance policy).
Often obtained from commercial banks, federal savings banks, and credit unions (new-car, used-car or home improvement loans)
Available through finance companies, retailers, and banks through credit cards. Finance companies often lend to people who cannot obtain credit from banks and credit unions. If you are denied credit by a bank or a credit union, you should question your ability to afford the higher rate a loan company charges. Before you sign a loan contract, make sure to:
Explore other financing options
Do your homework: contact several lenders, compare interest rates, payments, the terms of the loan, other fees and costs of the loan.
Know your rights under the law
Warning Signs of Debt Problems
Paying only the minimum balance on credit card bills each month
Increasing the total balance due on credit accounts each month
Missing payments, paying late, or paying some bills this month and others next month
Intentionally using the overdraft or automatic loan features on checking accounts or taking frequent cash advances on credit cards
Using savings to pay routine bills such as groceries or utilities
Receiving second or third payment notices from creditors
Not talking to your spouse about money or talking only about money
Depending on overtime, moonlighting, or bonuses to meet everyday expenses
Using up your savings
Borrowing money to pay old debts
Not knowing how much your until the bill arrives
Going over your credit limit on credit cards
Having little or nothing in savings to handle un expected expenses
Being denied credit because of a negative credit bureau report
Getting a credit card revoked by the issuer
Putting off medical or dental visits because you can’t afford them right now
A mathematical formula to determine how much interest has been paid at any point in a loan term. Also known as the sum of the digits, for an one year loan 1+2+3+4+5+6+7+8+9+10+11+12= 78. Month 1 formula would be Interest X (12/78)= interest paid, month 2 would be Interest X (11/78), Month 3 would be Interest X (10) and so on.
Practical Purchasing Strategies
Brand-name products are usually more expensive than non-brand products, but they offer a consistency of quality for which people are willing to pay. Store-brand and private-label products, sold by one chain of stores, are low-cost alternatives to famous-name products.
using unit pricing to compare packages of different size or brand.
When comparing prices, remember that
More store convenience (location, hours, sales staff) usually means higher prices
Ready-to-use products have higher prices
Large packages are usually the best buy; however, compare using unit pricing
“Sale” may not always mean savings
Resolving Consumer Complaints
Communication with the Company
Consumer Agency Assistance
Return to place of purchase or contact online retailer
Provide a detailed explanation and the action you desire
Be pleasant yet persistent in your efforts to obtain a resolution
Send an e-mail with the details of the situation
Describe your purchase
Name product and serial or model number or service
Include date and location of purchase and other details
Give history of problem
Ask for specific action
Attach copies of documents
State reasonable time for action
Post your concern s on the company’s online social media sites
Comment on a blog or a consumer website
Seek guidance from a local, state, or federal consumer agency
Determine if any laws have been violated in the situation
Consider the use of mediation or arbitration
Consider bringing your case to small claims court
Determine if a class action suit is appropriate
Seek assistance from a lawyer or legal aid organization
a network of offices that resolve complaints against local merchants. Better Business Bureaus are sponsored by local business organizations and companies are not obligated to respond to the complaints. The Better Business Bureau in your area can be of value before you make a purchase. They can tell you about the experiences of others with a firm with which you are planning to do business.
Automobile Operation Costs
Fixed Ownership Costs
Interest on auto loan
License, registration, taxes and fees
Variable Operating Costs
Gasoline and oil
Maintenance and repairs
Parking and tolls
Consumer Buying Influences
Types of Fraud
Automatics Debit Scams
Fraudulent Diet Products and Health Claims
Bogus “Campus Card”
Internet Pyramid Scheme
Arbitration and Mediation
Arbitration- the settlement of a difference by a third party- the arbitrator- whose decision is legally binding.
Mediation- The attempt by an impartial third party to resolve a difference between two parties through discussion and negotiation.
An independent federal agency whose goals are to protect consumers and to ensure a strong competitive market by enforcing a variety of consumer protection and antitrust laws. These laws guard against harmful business practices and protect the market from anti-competitive practices such as large mergers and price-fixing conspiracies.
one of a network of publicity supported community law offices that provide legal assistance to consumers who cannot afford their own attorney.
The Home-buying Process
Determine Home Ownership Needs
Find and Evaluate a Property to Purchase
Price the Property
Close the Purchase Transaction
Evaluate owning your place or residence
What are the benefits of home ownership?
Pride of ownership
What are the drawbacks of home ownership?
Higher living costs
Assess types of housing available
Building a home
When choosing a contractor to coordinate the project, consider the following:
Does the contractor have the experience needed to handle the types of building project you require?
Dies the contractor have a good working relationship with the architect, materials suppliers, electricians, plumbers, carpenters, and other personnel needed to complete the project?
What assurance do you have about the quality of materials?
What arrangements must be made for payments during construction?
What delays in the construction process will be considered to be legitimate?
Is the contractor licensed and insured?
Is the contractor willing to provide names, addresses and phone numbers of satisfied customers?
Have local consumer agencies received any complaints about this contractor?
Your written contract should include a time schedule, cost estimates, a description of the work and a payment schedule.
Determine how much you can afford
Price and down payment
Size and quality
Selecting a location
Using a real estate agent
Conducting a home inspection
Determine the home price
Negotiating the purchase price
Determine down payment
Qualifying for a mortgage
Points- prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1 percent of the loan amount
The application process
Fee payment and obtain commitment
Finding a property
Fixed-rate, fixed-payment mortgages
30-,20- and 15-year
Government financing programs
Federal Housing Authority (FHA)
Adjustable-rate, variable-apyment mortgages
Other financing methods
Buy-down- an interest rate subsidy from a home builder or a real estate developer purchased by the buyer that reduces a home buyer’s mortgage payments during the first few years of the loan.
Second Mortgages- a cash advance based on the paid-up value of a home; also called a home equity loan
Reverse mortgage- a loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the home dies
Meeting between the buyer, seller, and lender of funds, or representatives of each party, to complete the transaction
Documents are signed
Last minute details are settled
Appropriate amounts are paid
A number of expenses are incurred at the closing
Defines the boundaries of the property being purchased and conducts a search to determine whether the property is free of claims such as unpaid real estate taxes
During the mortgage term, the title company protects the owner and lender against financial loss resulting in future defects in the title and from other unforeseen property claims not excluded by the policy
Deed recording fee
Types of Mortgage Loans
Adjustable-rate mortgage (ARM)- payment changes on 1-, 3-, 5-, 7-, or 10-year schedule
Fixed monthly payments for 30 years provide certainty of principal and interest payments
Higher initial rates than adjustable
Lower rate than 30-year fixed; faster equity buildup and quicker payoff of loan
Higher monthly payments
Low down payment requirements and fully assumable with no prepayment penalties
May require additional processing time
Lower initial rates than fixed-rate loans, particularly on the 1-year adjustable. Offers possibility of future rate and payment decreases. Loans with rate “caps” may protect borrowers against increases in rates
Shifts far greater interest rate risk onto the borrowers than fixed-loans. May push up monthly payments in future years
Lower payments; more easily affordable
No decrease in amount owed; no building equity unless home value increase
Mortgage Application Process
Prequalification- involves completing the mortgage application. The borrower presents evidence of employment, income, ownership of assets, and amounts of existing debts. The lender obtains a credit report and verifies other aspects of the borrower’s application and financial status. A decision to approve or deny the mortgage is made. Indicating the maximum mortgage for which you qualify.
Fee payment and obtain commitment- at this point, lenders will likely charge a fee between $400 and $500. The loan commitment is the financial institution’s decision to provide the funds to purchase the home, which is when the purchase contract becomes legally binding. You decide whether to lock in an interest rate for 30-90 days, or if you believe rates may drop, you may float, locking in your rate at a later point in time.
Finding a property- an appraisal of the home occurs to determine the value based on location, features, and condition.
a valuation of property (ie. real estate, a business, an antique) by the estimate of an authorized person. In order to be a valid appraisal, the authorized person will have a designation from a regulatory body governing the jurisdiction the appraiser operates within.
Advantages Versus Disadvantages of Home Ownership
No previous owner
Pride of ownership
Higher living expenses than renting
Previously owned house
Pride of ownership
Higher living expenses than renting
Fewer maintenance responsibilities than house
Usually good accessibility to recreation and business districts
Less privacy than house
Uncertain demand affect property value
Potential disagreement with condominium association regarding rules
Ownership in form of nonprofit organization
Stable property value
Frequently difficult to sell
Potential disagreement among members
Other members may have to cover costs of unrented units
Manufactured home (mobile home)
Less expensive than other ownership options
Flexibility in selection of home features and appliances
May be difficult to sell in future
Financing may be difficult to obtain
Construction quality may be poor
Easy to move
Fewer responsibilities for maintenance
Minimal financial commitment
No tax benefits
Limitations regarding remodeling
May have restrictions regarding pets, or other activities
Easy to move; less maintenance
More room than apartment
Minimal financial commitment
Higher utility expenses than apartment
Limitations regarding remodeling