SOURCES OF LOANS AND

CREDIT

Chapter 4, Section 2

Types of Banks Commercial Banks Savings and Loan Associations Savings Banks Credit Unions Finance Companies

Commercial BankCommercial Bank – bank whose main functions

are to accept deposits, lend money, and transfer funds among banks, individuals, and businesses.

Control the largest amount on money. Offer the widest range of services

Savings and Loan Associations

Savings and Loan Associations (S&L)– depository institution that accepts deposits and lends money

Make family mortgage loans. Make commercial mortgages and auto loans. Interest rates are usually slightly less than

commercial banks.

Savings BanksSavings Banks – depository institution originally

set up to serve small savers overlooked by commercial banks.

Primary purpose is to accepts savings deposits.

Credit UnionsCredit Unions– depository institution owned and

operated by its members to provide savings accounts and low-interest loans only to its members.

Primarily make personal, auto, and home improvement loans. Also may offer Christmas time loans for buying presents.

Finance CompaniesFinance company– company that takes over

contracts for installment debts from stores and adds a fee for collecting the debt.

Retail stores like JCPenny, Lowe’s, Younkers, Best Buy etc. use these companies so they will can avoid the risks of loaning money to consumers.

Charge AccountsCharge account– credit extended to a consumer

allowing the consumer to buy goods or services from a particular company and to pay for them later.

Regular charge acct: usually has a credit limit of $500-$1,000. Bill is sent at the end of the month and the entire bill must be paid in full. Interest is not charged if the bill is paid in full on time.

Revolving charge acct: allows you to continue buying more items even if you have not paid off the previous month’s bill yet. Usually you must pay at least a portion of last month’s bill, usually 1/5 of the last month’s bill. Interest is charged on any unpaid amount.

Credit CardsCredit Card– credit device that allows a person to

make purchases without having to pay cash right away.

Finance Charge – cost of credit expressed monthly in dollars and cents.

Annual percentage rate (APR) – cost of credit expressed as a yearly percentage.

Get on the internet and see what kind of interest rates you can find on credit cards. •What is the annual fee for having the card? •What is the late fee charge?