Borrowing For Households And Individuals

Question 1

What is Borrowing?

Answer 1

Borrowing means receiving money from a person or financial institution, in exchange for a promise to pay back the money, with interest at an agreed time in the future.

Question 2

Factors to Consider Before Borrowing

Answer 2

Do I really need the item?
Can I get the money any other way, without having to borrow?
How much will it cost? Think about the interest you must pay.
Can I afford the repayments?

Question 3

Instalment:

Answer 3

Instalment: is a fixed sum of money due on the same date for a specified period of time until the loan plus interest is repaid.

Question 4

Asset:

Answer 4

is anything owned by an individual, household or business that is worth money e.g a house, a car, machinery

Question 5

Creditworthines

Answer 5

is an estimate of someone’s ability to pay off a loan based on their saving and borrowing history.

Question 6

Guarantor:

Answer 6

Guarantor: is a person who has a good credit rating who agrees to pay your loan for you if you are unable to do so.

Question 7

Collateral:

Answer 7

is something, usually an asset, used for security for repayment of a loan e.g the deeds to a house. If you cannot repay the loan, the financial institution can take the asset to pay the loan.

Question 8

Insolvent:

Answer 8

means when a person is unable to pay their debts off as they need to.

Question 9

Responsible Borrowing:

Answer 9

means that you do not borrow more than you are able to pay back.

Question 10

Reasons for Borrowing

Answer 10

Expensive item e.g. A house, a car
To help pay bills
For emergencies
Unplanned expenditure
To help pay College fees

Question 11

Name three types of borrowing money

Answer 11

Short-term
Medium-term
Long-term

Question 12

Applying for a Loan

Answer 12

Personal Details e.g name, date of birth
Employment Details
Savings Record
Borrowing History
Purpose (Reason) for the Loan

Question 13

Annual Percentage Rate (APR):

Answer 13

is a calculation of the overall cost of a loan and represents the actual yearly cost of the amount borrowed.

Question 14

Declining Principal:

Answer 14

is the amount you still owe at any point during the loan. It is going down each month because of the repayments.

Question 15

Cost of Credit:

Answer 15

is the difference between the amount you borrow and the total you repay.