FIN 502 Study Guide - Effective Interest Rate, Credit Bureau, Credit Score
Document Summary
When you borrow, lender giving you credit/trust against your future earnings. Can acquire assets sooner and in larger amts. Over-in-debtness through circumstances beyond control = loss of unemployment, reduction of. Borrowing allows income stream to match desired consumption. Right way to take adv of credit = free loan grace period, detailed record keeping, Wrong way to take adv of credit = build up large debt bal and pay over 18% non-tax-deductible income interest. Debt capacity amt of debt can reasonably expect to be able to repay under terms of loan agreements given current and expected future fin situations (a,l, cf, income, exp) Looks at what borrower has today and what borrower will have in future. Determinant of debt capacity = expected future net c/ ability to generate cf after living exp and capital outlays to pay interest and principal. Lender interested in borrowers s-t and l-t ability to pay interest and principle.
