Ch 8- Borrowing Wisely Flashcards

1
Q

What is the cost of borrowing?

A
  • A flat rate of interest
    -APR
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2
Q

What is a flat rate of interest?

A

When the borrower is charged a fixed rate of interest each year on the original sum of money borrowed.

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3
Q

What does APR stand for? What is it?

A

Annual Percentage Rate is the full rate of interest charged on a loan each year.
A.K.A. true rate of interest

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4
Q

What are short-term sources of finance?

A

-Item can be paid back within less then a year
-The money is used to finance recurring expenses like food or fuel.

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5
Q

What is an example of short-term finance sources?

A

⇒ Credit purchases
⇒ Credit cards
⇒ Overdrafts

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6
Q

What are medium-term sources of finance?

A
  • Item can be paid back within 1 and 5 years
  • They are usually used to buy an expensive item that will last many years such as a car or a fitted kitchen
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7
Q

What are examples of medium-term finance sources?

A

-Hire purchase
-Term loans

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8
Q

What are long-term sources of finance?

A
  • Item is usually paid back in 5+ years
  • They are used to purchase items like a house or to pay college fees
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9
Q

What are examples of long-term sources of finance?

A

⇒Mortgage

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10
Q

What short-term sources of personal finance are available?
xxxxxx

A
⇒Credit purchasing
⇒Credit cards
⇒Store cards
⇒Charge cards
⇒Bank overdraft
⇒Moneylenders
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11
Q

What does buying on credit mean?

A

Receiving the goods now but paying for them later.

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12
Q

What are credit cards?

A

Financial products that allow people to buy goods on credit up to a certain value without needing cash.

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13
Q

What is credit limit?

A

The maximum amount of money that can be borrowed on the credit card

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14
Q

What are charge cards?
xxx

A

They are similar to credit cards except that you must pay off all the money owed when you receive your monthly statement. E.g. American Express

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15
Q

What are bank overdrafts?

A

They allow a current account holder to withdraw more money than they actually have in their account but only up to a certain limit.

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16
Q

What is a credit risk?

A

Someone who is considered at high risk of not paying their debts

17
Q

What is a licensed moneylender?
xxx

A

A person authorised by the Financial Regulator tp provide loans

18
Q

What are term loans?

A

they allow consumers to borrow a sum of money for a fixed period of time, and repay it on a regular basis in agreed instalments

19
Q

What is collateral?

A

something used as security against a loan that a bank can sell if the loan is not repaid

20
Q

What is a hire purchase?

A

you are renting a product until you have fully paid for it in instalments over a period of time

21
Q

What is leasing?

A

renting an item on a contract. No matter how long you pay the lease, you never own the item

22
Q

What is a mortgage?

A

a long-term loan to purchase property

23
Q

What is bankruptcy?

A

an individual can no longer afford to pay all their debts

24
Q

What is repossesion?

A

the bank takes over full legal ownership of a property. The former owners have to leave the property and the bank resells it to repay the mortgage debt