Consumer Credit
Chapter 4
Live within your income,
even if you have to borrow
money to do so.
- Josh Billings
The use of credit cards:
• There are almost a billion MasterCard and Visa
credit and debit cards in the United States.
• In 2006, Visa cardholders made more than
$1,000,000,000,000 in purchases
• Today’s consumer owes money, on average, to
13 different lending institutions.
• More than half of the United States
population has at least 2 credit cards.
What do you need to know
before using credit?
2 ways to make a purchase:
1) Buy now, pay now
2) Buy now, pay later
 Anytime you purhcase something that you do not pay
for immediately, you are using credit.
 How is using electricity a form of credit?
 What other daily activities can be considered credit?
Buy now, pay later
 Any time you purchase something that you do not
pay for immediately
- Credit
 People who use credit
- Debtors
 Organizations or people that extend credit to
- Creditors
What are the advantages
and disadvantages of using
Why does using credit
tempt overspending?
Installment Plans
• The customer pays for the merchandise over a
period of time.
• The customer pays part of the selling price at the
time of purchase (down payment)
• The rest of the selling price is paid in monthly
• Customers are also charged interest, also known as
a finance charge
Heather wants to purchase an electric guitar.
The price of the guitar with tax is $2,240. If
she can save $90 per month, how long will it
take her to save up for the guitar?
Is Heather using credit?
Divide selling price by monthly savings
 24.9 → 25 months
Heather speaks to a salesperson who
suggests she buy the guitar on an installment
plan. It requires a 15% down payment. The
remainder, plus an additional finance charge,
is paid back on a monthly basis for the next
two years. The monthly payment is $88.75.
What is the finance charge?
Down payment of 15% of selling price
How do you find 15% of $2,240
= (0.15) x (2,240) = $336
Price = $2,240;
Down payment = $336
• Makes a monthly payment of $88.75 for 2 years
– (24 months) x (88.75) = $2,130
• How much did she pay for the guitar?
$2,130 + $336 = $2,466
• What was the finance charge?
$2,466 - $2,240 = $226
Class Work
• Page 178, 2-6
Consumer Credit
Chapter 4
He that goes a borrowing
goes a sorrowing.
Benjamin Franklin
What is:
• Credit?
• Finance Charge?
• Creditor?
• Debtor?
Carpet King is trying to increase sales, and it
has instituted an installment plan with no
interest, as lon gas the total is paid in full
within six months. There is a $20 minimum
monthly payment required. If you buy a carpet
for $2,134 and make only the minimum
payments for five months, how much will you
have to pay in the sixth month?
→ $20 a month for 5 months = $100
→ You will need to pay $2,034 in the sixth
2. Monique buys a $4,700 air conditioning
system using an installment plan that requires
15% down. How much is the down payment?
→ What is 15% of $4,700?
= (0.15) x (4,700)
= $705
How much will Monique have left to pay?
= 4,700 - 705
= $3,995
3. Craig wants to purchase a boat that costs
$1,420. He signs an installment agreement
requiring a 20% down payment. He currently
has $250 saved. Does he have enough?
→ What is 20% of $1,420?
= (0.20) x (1,420)
= $284
Does he have enough?
4. Jean bought a $1,980 snow thrower on the
installment plan. The agreement included a
10% down payment and 18 monthly payments
of $116 each.
a) How much is the down payment?
= (0.10) x (1,980) = $198
b) What is the total amount of the monthly
= ($116) x (18 months) = $2,088
c) How much did Jean pay for the snow thrower?
= $198 + $2,088 = $2,286
5. Linda bought a washer and dryer for y
dollars. She signed an installment agreement
requiring a 15% down payment and monthly
payment of x dollars for one year.
a) How much is the down payment?
= (0.15) (y) = 0.15y
b) How many monthly payments? 12
c) What is the total amount of monthly payments?
= (12) (x) = 12x
c) How much did Linda pay for the washer & dryer?
= 0.15y + 12x
5. How much is the finance charge?
= Amount paid – price of purchase
= 0.15y + 12x - y
6. Zeke bought a $2,300 bobsled on the
installment plan. He made a $450 down
payment, and he has to make monthly
payments of $93.50 for the next two years.
How much interest will he pay?
Down Payment: $450
Monthly payment amount:(93.50) (24) = $2,244
Total amount paid: $450 + $2,244 = $2,694
Interest: $2,694 - $2,300 = $394
The Whittendale family purchases a new
refrigerator on a no-interest-for-one-year plan.
The cost is $1,385. There is no down
payment. If they make a monthly payment of x
dollars until the last month, express their last
month’s payment algebraically.
Down Payment: $0
Monthly payment amount:(11) (x) = 11x
Total amount paid: 11x
Last Payment: $1,385 – 11x
Class Work
• Page 178, 7 - 11