Objective

The purpose of this activity is to examine the true cost of credit by reading a sample disclosure statement, including fees, limits, finance charges, grace periods and APRs associated with credit.

Directions

The following terms are found on credit card disclosure statements. Work with a partner to locate the following information on the sample disclosure statement.

Annual Fee: The fee a credit card company charges for the use of their credit card.

Credit Limit: The maximum amount of money the lender is willing to loan an applicant.

Finance Charge: The total cost of using credit, including interest and fees.

Origination Fee: The charge for setting up a loan (often associated with home loans).

Loan Term: The length of time you have to pay the loan. Remember: The longer the loan, the lower your monthly payment and the greater the interest paid.

Grace Period: The length of time that the lender charges no interest on money borrowed when paying off your balance in full each month.

Annual Percentage Rate: The cost of the loan each year expressed as a percentage. All lenders are required by law to calculate APR the same way.

Introductory Rate: Lower interest rate offered by credit card companies, usually for a short period of time, to entice you to sign up for credit with them. Eventually, the rate expires and a new increased rate takes effect.

Sample Disclosure Form

Annual Percentage Rate (APR) for purchases	A 0% fixed APR until the first day of the billing cycle. After that, 11.99% fixed, 14.99% fixed, or 21.99% fixed, depending on our review of your application and credit history.(a)
Other APRs	Balance Transfer APR: 0% fixed APR until the first day of the billing cycle. After that, 11.99% fixed, 14.99% fixed, or 21.99% fixed, depending on our review of your application and credit history. Cash Advance APR: 25.24% variable Default APR: Up to 34.24% variable. See explanation below (b).
Variable rate information	The following APRs may vary monthly based on the Prime Rate (c): Cash Advance APR: The Prime Rate plus 16.99%. Default APR: The Prime Rate plus up to 24.99%.
Grace period for repayment of purchase balances	At least 20 days
Method for computing the balance for purchases	Average daily balance method (including new purchases).
Annual fee	None
Minimum finance charge	$1.00
Transaction fee for balance transfers	3% of the amount of each transaction, but not less than $5.00 nor more than $99.00.
Transaction fee for cash advances	3% of the amount of each transaction, but not less than $10.00
Late Payment fee	$15.00 on balances up to, but not including, $100; $29.00 on balances of $100.00 up to, but not including, $250.00; and $39.00 on balances of $250.00 and over.
Over-the Credit-Limit fee	$39.00
International Transactions	3% of the U.S. dollar amount of the transaction, whether originally made in U.S. dollars or converted from a foreign currency.
(a) Rates, fees, and terms may change: We reserve the right to change the account terms (including the APRs) at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account. For example, we may change the terms based on information in your credit report, such as the number of other credit card accounts you have and their balances. The APRs for this offer are not guaranteed; APRs may change to higher APRs, fixed APRs may change to variable APRs, or variable APRs may change to fixed APRs. Any changes will be in accordance with your account agreement. (b) Your APRs may increase if you default under any Card member Agreement you have with us for any of the following reasons: We do not receive at least the minimum payment due by the date and time due; you exceed your credit line on this account if applicable; or you make a payment to us that is not honored by your bank. Your APRs may increase as of the first day of the billing cycle in which the default occurs. We may consider the following factors to determine the default rate: the length of time your account has been open; the existence, seriousness and timing of defaults; other indications of your account usage and performance; and information about your other relationships with us or any of our related companies. (c) the Prime Rate is the highest prime rate published in the Money Rates column of The Wall Street Journal two business days before the closing date on the statement for each billing period.

Questions for the Disclosure Statement

1. Explain when this credit card company can adjust the APR.

2. What is the annual fee for having this credit card? $ ____________

3. What is the grace period on this card? At least _____________ days.

4. What is the special introductory rate for this card?

	The special introductory rate is 21.99% variable.
	There is no special introductory rate on this card.
	The special introductory rate depends on your credit history.
	The special introductory rate is 11.99% fixed.

5. How much will it cost, in fees, to transfer a $1,000 balance to this card? $ ______________

6. What is the charge if you exceed your credit limit? $ ___________

7. What will your charge be if your payment is late?

8. How will it affect your APR?