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Flashcards in Banking - Finance - Rodio Deck (15)
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Types of Financial Services:

1. Savings - Time Deposits and Certificates of Deposit (CD)
2. Payment Services - Checking Accounts, Debit Cards, ATM's
3. Borrowing - Car Loans, Students Loans, Mortgages, Home Equity, Line of Credit


Types of Financial Institutions:

Depository Banks:
- Commercial
- Savings and Loans
- Credit Unions - Borrow money from a company
- Mutual Savings
Non-Depository Banks:
- Life Insurance
- Investment Companies


Problematic Financial Businesses:

1. Pawnshops
2. Check Cashing Outlets
3. Payday Loans
4. Rent-To-Own Centers


Types of Savings Plans:

1. Regular Savings Accounts - Easy - Low Interest Rates, but easy to access money
2. Certificates of Deposits (CD)
3. Money Markets - Higher interest rates, but no access to money
4. US Savings Bonds - 7 years for face value


Compounding Interest:

1. Most powerful tool in finance
2. Know rule of 7 at 10% - Your money will double in 10 compound interest periods


Checking Account:

1. Open a checking account - Look into a student account
2. Writing Checks
3. Making Deposits
4. Keeping Track of a Checks
5. Bank Reconciliation


How do banks make money?

1. Loans
2. Fees
3. Investments


Source of Consumer Credit:

1. Loans - Borrowed money with an agreement to repay it with interest in within a certain time period
2. Inexpensive Loans - Parents or other family members could be source of inexpensive loans (probably want to explore this option first)
3. Medium Priced Loans - Often you can obtain medium priced loans with low interest, look to credit unions
4. Expensive Loans - Easiest loan to obtain also most expensive. Credit cards, cash advances.
5. Home Equity Loans/Asset Backed Loans - Connected to your house/attach to your mortgage


Credit Cards:

1. Debit Cards - Your own money
2. Cobranding - Linking a card with business trade names and offering points
3. Smart Cards - Equip with computer chip for control and storage
4. Store-Value/Gift Cards - Prepaid Cards
5. Travel and Entertainment Cards - Amex the balance is due every month, not really a credit card


Can you afford a loan?

1. Debt Payment to Income Ratio - Percentage of debt you have in relation to income - don't pay more than 20% of your net income on debt payments
2. Financial charge or APR is cost of credit on an annual basis, monthly finance charges is rate times balance divided by 365 times days in month


Calculating Cost of Credit:

1. Simple Interest - Computed only on the principal, three factors the amount, interest, and time period
2. Simpel Interest on Declining Balance - When simple interest loan is paid back in more then one payment, you pay interest only on amount of principle you have not paid
3. Add-On Interest - Calculated on the full amount of original principal, no matter how often you make payments, the longer you take to pay the more it costs.
4. Cost of Open Ended Credit - Truth in lending act requires to inform how APR will be calculated


Lender Risk vs Interest Rate:

1. To reduce lender risk and increase your chances of loan at a lower rate, consider the following:
- Variable Interest Rates
- A secured loan
- Up front cash
- A shorter term


The Five C's of Credit:

1. Character
2. Capacity
3. Capital
4. Collateral
5. Conditions


Credit Rating:

The information gathered from your application and the credit bureau establishes your credit rating. A credit rating is a measure of a person's ability and willingness to make credit payment on time



Credit Application is Denied:

ECOA gives you the right to know the reasons. If the denial is based upon a credit report you are entitled to know the specific information on the report