FINA 385 Lecture Notes - Lecture 5: Cash Flow, Home Equity, International Tropical Timber Organization
26 May 2016
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Define consumer credit and analyze its advantages and disadvantages. Credit is an arrangement to receive cash, goods or services now and pay for them in the future. It is based on trust that the borrower will repay. Consumer credit is the use of credit for personal needs (except borrowing for a home mortgage). There are three ways consumers can finance current purchases. Draw on savings this reduces funds set aside to achieve financial goals. Use current cash flows this makes it harder to save toward financial goals. Borrow against future income this reduces future spendable income. To satisfy the need to consume (e. g. shopaholics). To finance a purchase that is not required. Before you use credit for a major purchase, ask yourself some questions o o o o o o o. Credit provides immediate access to goods and services. Use of credit doesn"t increase total purchasing power, Credit provides a cushion in financial emergencies. but ties up future income.
