Ch 8- Borrowing Wisely Flashcards
What is the cost of borrowing?
- A flat rate of interest
-APR
What is a flat rate of interest?
When the borrower is charged a fixed rate of interest each year on the original sum of money borrowed.
What does APR stand for? What is it?
Annual Percentage Rate is the full rate of interest charged on a loan each year.
A.K.A. true rate of interest
What are short-term sources of finance?
-Item can be paid back within less then a year
-The money is used to finance recurring expenses like food or fuel.
What is an example of short-term finance sources?
⇒ Credit purchases
⇒ Credit cards
⇒ Overdrafts
What are medium-term sources of finance?
- 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
What are examples of medium-term finance sources?
-Hire purchase
-Term loans
What are long-term sources of finance?
- Item is usually paid back in 5+ years
- They are used to purchase items like a house or to pay college fees
What are examples of long-term sources of finance?
⇒Mortgage
What short-term sources of personal finance are available?
xxxxxx
⇒Credit purchasing ⇒Credit cards ⇒Store cards ⇒Charge cards ⇒Bank overdraft ⇒Moneylenders
What does buying on credit mean?
Receiving the goods now but paying for them later.
What are credit cards?
Financial products that allow people to buy goods on credit up to a certain value without needing cash.
What is credit limit?
The maximum amount of money that can be borrowed on the credit card
What are charge cards?
xxx
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
What are bank overdrafts?
They allow a current account holder to withdraw more money than they actually have in their account but only up to a certain limit.
What is a credit risk?
Someone who is considered at high risk of not paying their debts
What is a licensed moneylender?
xxx
A person authorised by the Financial Regulator tp provide loans
What are term loans?
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
What is collateral?
something used as security against a loan that a bank can sell if the loan is not repaid
What is a hire purchase?
you are renting a product until you have fully paid for it in instalments over a period of time
What is leasing?
renting an item on a contract. No matter how long you pay the lease, you never own the item
What is a mortgage?
a long-term loan to purchase property
What is bankruptcy?
an individual can no longer afford to pay all their debts
What is repossesion?
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
