Ch 10- Borrowing Flashcards
Borrowing
Receiving money from a person or financial institution in exachange for an obligation to pay the money back with interest at an agreed time in the future
Installment
A fixed sum of money due as one of a number of payments spread over an agreed period of time
Reasons for borrowing
To pay for expensive items
Emergencies
To deal with short term deficits
Sources of borrowing
Banks
Credit unions
Moneylenders
Types of short term borrowing
Bank overdraft - permission to withdraw more money form ur current account than what’s in it
Credit card- cardholders can buy items and pay later
Types of medium term borrowing
Medium term loan- loan from bank and credit unions.Fixed repayments on monthly basis. Interest
Hire purchase- purchaser pays a deposit followed by an agreed number of fixed installments. Hirer only owns the item when the last installment is paid
Cooling off period
Hirer has the right to call off agreement within 10 days of receiving a copy of the agreement
Leasing
Allows the person to use goods for a period of time without ever owning them
Long term loan
Repaid in installments and interest eg mortgage
Collateral
Something of value that the borrower risks losing if repayments aren’t made
Guarantor
Person who agrees to pay the loan back if the applicant is unable to
Moneylenders
Charge very high rates of interest
Unlicensed moneylenders are illegal
Loan application form
Personal details eg name
Employment details
Saving history and existing loans
Loan details eg purpose
The Amount of money that can be borrowed depend on
Creditworthiness Ability to repay Purpose Job security Income and saving history
Creditworthiness
The ability a person has to repay a loan based on saving and borrowing history
