ch8 - borrowing

Question 1

define borrowing

Answer 1

getting a sum of money from a financial institution which must be paid back plus interest

Question 2

what is a loan?

Answer 2

a sum of money that is borrowed from a financial institution and then paid back in instalments

Question 3

what is a collateral?

Answer 3

something of value that the borrower promise to give to the lender in the event of non-payment of loan

Question 4

what is a guarantor

Answer 4

a person who agrees to pay the loan if the applicant is unable to pay

Question 5

what is a mortgage?

Answer 5

a loan to buy a house or other property

Question 6

what is APR

Answer 6

annual percentage rate charged on a loan

Question 7

what is HP

Answer 7

hire purchase

allows a person to use good while they are paying them off

Question 8

what is leasing?

Answer 8

allows a person to use good for a period of time without ever owning them

Question 9

what is debt ?

Answer 9

a sum of money that is owed / overdue

Question 10

sources of borrowing

Answer 10

• banks
• credit unions
• moneylenders

Question 11

mid term loan v long term loan

Answer 11

mid term - paid back to the lender in instalments over 1 - 5 yrs eg car
long term - repaid over more than 5 yrs eg house

Question 12

the amount of money that a person can borrow depends on … (4)

Answer 12

income, job security, existing loans, credit history

Question 13

cost of loan calculation

Answer 13

cost of loan = amount repaid - amount borrowed

Question 14

borrowers rights and responsibilities

Answer 14

rights

• know the apr
• know the total cost of the loan
• to cancel the loan within 14 days of signing (cooling off period)
• know the number of payments to be made and the amount of each one