Bank loans

MINIMUM PAYMENTS

• Most credit cards require a minimum payment every month.
• Minimum payments are usually 2 to 5 percent of the unpaid balance.
• Paying the minimum payment keeps the account in good standing, but it does not reduce the principal much.

TREND TOWARD LOWER MINIMUM PAYMENTS

• Increases bank profits
• Contributes to greater consumer debt

TERM

• For installment loans, length of term also affects the total finance charge.
• Repaying the loan over a longer period
• reduces the monthly payment
• increases the total payment for the loan

COMPARING LOANS

Loan amount: $6,000

Creditor A Creditor B Creditor C

APR 14% 14% 15%

Length of Loan 3 years 4 years 4 years

Monthly Payment $205.07 $163.96 $166.98

Total Finance Charge $1,382.52 $1,870.08 $2,015.04

Total Payments $7,382.52 $7,870.08 $8,015.04

THE IMPACT OF CREDIT

• Overextension
• The role of banks
• Credit counseling

Lesson 6.4 CREDIT AND THE LAW

Explain the purpose of consumer protection laws in lending

Identify important laws associated with consumer loans

GOALS

TRUTH IN LENDING

• The Truth in Lending Act (TILA), Title I of the Consumer Credit Protection Act of 1968 guarantees that all information about costs of a loan is provided in writing to consumers.
• Items that must be disclosed include the following:
• Total sales price
• Amount financed
• Annual percentage rate
• Variable rate information
• Total payments

• Schedule of payments
• Prepayment policies
• Late payment policies
• Security interest

EQUAL CREDIT OPPORTUNITY ACT

The Equal Credit Opportunity Act (ECOA) prohibits the use of race, color, religion, national origin, marital status, age, receipt of public assistance, or exercise of any consumer right against a lender as a factor in determining creditworthiness.