E CS 20

Credit and Debt

Credit and debt can be used to achieve personal financial goals.

Content Statement

20. There are costs and benefits associated with various sources of credit available from different types of financial institutions.

Content Elaborations

There is a direct relationship between the cost of personal credit, the amount of financial liability a person carries and one’s payment history.

Leasing, borrowing and rent-to-own are all different options to extend one’s credit. Each comes with its own rates and terms.

Home mortgages, car loans, revolving credit accounts and short-cycle credit cards (e.g., gasoline, mobile phones) all operate differently.

The length of the payment term of a loan directly affects the interest rate. Generally, the longer the term, the lower the rate and the more costly the loan. Making the minimum payment on a credit liability increases the costs of the loan over its term.

Borrowing against the cash value of an insurance policy is generally less expensive than borrowing from a bank or credit union. The borrower repays his or her own policy instead of paying a third party, but this method of borrowing lessens the value of the insurance coverage during the term of the loan.

Expectations for Learning

Give examples of different kinds of credit that are provided by financial institutions and explain the costs and benefits of each.